DT discussing new investment fund with other telcos

Some details emerged of a new venture capital (VC) fund that Deutsche Telekom (DT) is hatching with third-party co-investors, including other operators.

Speaking at the Group’s late-May 2018 Capital Markets Day, Timotheus Höttges, Chief Executive (CEO) of DT, claimed that a “lot of external parties” wanted to participate in the new fund, which will be managed by Deutsche Telekom Capital Partners (DTCP), the Group’s investment arm.

There were suggestions that discussions have already taken place with potential partners, although it is unclear how far these have advanced.

Cash in the SoftBank

Demonstrating chutzpah about the pulling power of DTCP management, Höttges said he will “even approach” SoftBank Group, DT’s prospective US partner, to see if it is willing to co-invest. It would be a coup for DT’s CEO if he could get SoftBank on board, but it seems a long shot. Although the Sprint transaction makes Höttges potentially much closer to Masayoshi ‘Masa’ Son, the multi-billionaire founder and president of SoftBank — they will both serve on the Board of Directors of New T-Mobile, should the merger of Sprint and T-Mobile US get the regulatory green light (Deutsche Telekomwatch, #72 and #73) — Masa has significant technology investment plans of his own, notably the Saudi Arabia-backed, $100bn (€86bn) SoftBank Vision Fund. It would seem odd if Son deferred to DTCP investment managers by allocating significant sums to the putative new fund.

 Langheim’s rising ambition

Thorsten Langheim, Head of Group Corporate Development at DT, delved a little bit deeper into the rationale for the new fund during the Capital Markets Day. First, DT wants to raise much more VC funding than is possible from its own resources. Second, it wants to co-invest with other telcos, which preferably do not “overlap” with DT’s activities. “ We are thinking about creating a fund where other telcos, maybe not the ones that are overlapping with us, are also putting some money in and then we have a bigger scale, because we want to do more meaningful investments with a team that is basically measured on the success. ” — Langheim.

Langheim did not elaborate on how this might work in practice, or what the priority investment areas will be for the new fund. The remark regarding desire for non-overlapping partners seems to suggest that DT is looking for funding from North American, Middle Eastern, or Asian operators if the idea is to make a cross-border investment play of some sort in Europe.

Langheim mentioned that investment in so-called over-thetop players may well prove more financially advantageous, long-term, than revenue-sharing arrangements. “ I don’t want to always come to [Group management] and say ‘give me more money’. Because our investment rate is now increasing every day, we have a very successful team that is working in three locations — why don’t we have a buy-in venture fund, equity fund of the telco industry in Europe? ”  And you may now ask yourself ‘what does that mean?’. The interesting thing is, in Europe, nothing scales, really. If you build an [Internet of Things] solution in one area, you may have to go to many different telcos in order to generate something which is more meaningful… ” — Langheim.

Look at our track record, guys

The idea of a new, “buy-in” VC fund appears to have gathered momentum because people are apparently knocking on DTCP’s door to get a piece of its high-return action.

Langheim suggested that at least one potential investor, presumably an operator, was willing to stump up cash in the new fund because DTCP had proved “so successful”.

There is some substance to this. Since the €450m DTCP investment fund officially got up and running in early-2015 — with €250m set aside for a VC fund, and €200m for “special situations” — an update at Capital Markets Day revealed that DTCP had made 35 deals and five exits. DTCP’s internal rate-of-return to date is 70%, bragged Höttges (Deutsche Telekomwatch, #47 and passim).