Deutsche Telekom AG, Germany’s largest telecommunications company, will overhaul its startup investment strategy so it can accelerate a push in new businesses to offset declining telephone revenue.
The company enabled its T-Venture arm to buy majority stakes in startups and adjusted the structure of the venture funds to enable quicker decisions on attractive targets, Nico Goericke, a spokesman, said in a phone interview. T-Venture has a total budget of about 450 million euros ($566 million) for investments and plans to step up their frequency, he said.
Changes in the approach to startups, so far limited to buying minority stakes, were necessary because managers at Bonn-based Deutsche Telekom weren’t satisfied with growth in new businesses and felt T-Venture didn’t invest enough of its budget, according to a person familiar with the decision who asked not to be identified because the discussions were confidential.
“Through this new structure, we want to integrate startups as majority investments into Deutsche Telekom and speed up our pace of innovation,” Goericke said, declining to identify potential targets.
T-Venture, with assets worth 750 million euros, has investments in about 80 companies, including taxi-finding phone application maker Intelligent Apps GmbH and Pinger Inc., which makes software for free communication between phones and social networks.
About 100 million euros of T-Venture’s current budget has been invested, while 240 million euros is earmarked for minority investments and initial funding for early-stage entrepreneurs, and 100 million euros can be spent on majority stakes and follow-up funding for existing investments, Goericke said.
Chief Executive Officer Rene Obermann took charge of innovation strategy this year after board member Ed Kozel stepped down and is pushing ties with startups.
Obermann plans to increase investments it makes every year from the current rate of about 20, Goericke said. Startups acquired under the program will be managed by the thematically related Deutsche Telekom business unit, rather than by T-Venture, Goericke said.
“The smaller companies can benefit from our customer reach, and at the same time they can remain flexible and independent of the established corporate processes so they can keep their innovative dynamics,” Goericke said.
Deutsche Telekom’s sales may fall 0.9 percent this year to 58.2 billion euros, according to the average estimate in a Bloomberg survey of 26 analysts. At the IFA consumer electronics show in Berlin last week, the company unveiled a television offering for mobile devices and a deal with Spotify Ltd. to allow mobile customers to access streamed music.
Deutsche Telekom rose 0.2 percent to 9.55 euros as of 3:20 p.m. in Frankfurt.
At its shareholder meeting in May, Deutsche Telekom proposed adding venture capital activities into the company’s charter. In the same month, Deutsche Telekom also opened a startup incubator called hub:raum to lower the entry level for Deutsche Telekom’s investments. The company has promised initial funding of as much as 300,000 euros per startup and plans to take in 10 to 15 companies every year.
In 1986, Obermann co-founded a retailer of answering and fax machines. The ABC Telekom business was later acquired by Hong Kong billionaire Li Ka-Shing’s Hutchison Whampoa Ltd.
Deutsche Telekom isn’t the only European phone company investing in startups. In Spain, Telefonica SA runs a program dubbed Wayra, which nurtures companies in Europe and Latin America. Telefonica receives a 10 percent stake in each business and a preference right to buy a successful product.
Telefonica has also started Amerigo, an international network of technology venture capital funds, supported by the governments of Spain, Colombia, Chile and Brazil, as well as financial institutions, the company said in a statement today.
Amerigo is designed to become a source of financing for technology entrepreneurs worldwide “particularly in areas such as Latin America that are not currently a focus for venture capital.” Telefonica said it will invest 68 million euros in the venture over the next five years and Amerigo starts with about 300 million euros of committed capital.