Telstra fires $50m warning shot at Oz VCs

Summary:Telstra is poised to plant its flag in Australia's start-up landscape in 2012, armed with a $50 million war chest, a Silicon Valley presence, and an industry veteran previously responsible for multimillion-dollar funds at Macquarie Bank and Deutsche Bank.

Telstra is poised to plant its flag in Australia's start-up landscape in 2012, armed with a $50 million war chest, a Silicon Valley presence, and an industry veteran previously responsible for multimillion-dollar funds at Macquarie Bank and Deutsche Bank.

The applications and venture group was established in July as a vehicle for Telstra to invest in technologies that align with its commercial and financial efforts, but so far it hasn't actively pursued investment opportunities.

Next year, Telstra will ramp up its investment in Australian start-ups, according to applications and venture group head Deena Shiff, who, in a recent interview with ZDNet Australia, talked about the $50 million investment pool, the recent recruitment of an Australian investment manager and plans to recruit a "VC specialist" based in Silicon Valley next year.

"Since we opened our doors, as it were, in August, we've had so much interest we haven't gone out and done external road shows for what we're seeking," Shiff said.

"There's a significant amount of activity in the market ... [Next year] we will be going out to market."

The investment structure is similar to a traditional venture-capital fund, which typically invests in early-stage companies, but a key difference is that there is no deadline for when Telstra needs to cash out its investments.

This means that Telstra can tweak its investment mandate, and Shiff said that the primary filter is to look at broadband-based applications and technologies where Telstra can add value as a commercial and strategic partner (eg, health, education and e-commerce).

"The way we're assessing them is to look at whether we will add value as the owner of an investment rather than looking at passive investments," Shiff said. "Whether we're able to support the application by putting it on our network, providing cloud-based services and distribution and so on."

"It tends to act as an effective filter ...Ideally, we're looking to make investments where they have a proven business model, customers and revenue, and ideally making a profit."

This means there's no limit to the size of the company they can invest in, she said.

"Because we're making investments based on strategic considerations, we're not limiting ourselves in terms of size," Shiff said. "They basically have to meet strategic and financial hurdles."

To drive this activity, Telstra this month poached Matthew Koertge from Accede Capital, the VC firm he co-founded in 2006 with David Shields and Chris Beare (former NICTA board member and co-founder of Radiata, which was purchased by Cisco for US$595m).

Koertge has over a decade's experience in private equity investment in Australia, including: the head of the venture capital team at Deutsche Bank, where he also served on the committee which managed a $2 billion private equity portfolio; and a founding team member of the venture capital team at Macquarie Bank.

He has dealt with companies through various stages, from commercialising an idea to acquisition and initial public offering, and worked with Seek, Looksmart, electronics manufacturing software-developer Altium, Greengrocer.com.au (acquired by Woolworths), and customer metrics site RedSherriff. He also worked in various operational and engineering roles for Fujitsu.

Telstra's moves into venture investment come at a tough time for the Australian venture capital industry, which is already under threat from a range of alternative funding models, including incubators, angel investors and foreign firms.

Recently, ZDNet Australia revealed that Silicon Valley firm Accel Partners expects to spend at least $120 million over the next two years on Australian start-ups to complement its existing stakes in software-developer Atlassian, crowd-sourced marketplace 99designs and currency-trading platform OzForex.

Topics: Telcos, Start-Ups, Telstra

About

Mahesh Sharma earned his pen licence in his homeland, where he covered the technology industry for ZDNet, SMH, Sky Business News, and The Australian--first as an FTE, and later as a freelancer. The latter fueled his passion for startups and empowered a unique perspective on entrepreneurs' passion to solve problems using technology. Armed... Full Bio

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