ERICY and Siemens: Siemens venture fund reaps 1,100 percent gain
By Ken Yamada
Redherring.com, January 15, 2000
Siemens (OTC: SMAWY) may be considered a lumbering giant by many, but its young Mustang Ventures group is off to a fast start.
The group's venture fund has grown in value 1,100 percent, to $1.2 billion, since starting just under a year and half ago with $100 million, says Bjoern Christensen, Mustang president. Siemens just pledged another $100 million to the fund, a step closer to its self-proclaimed cap of $300 million, an amount which likely won't be needed. Mr. Christensen predicts Mustang will be self-financed by the end of September, the end of its fiscal year.
The German giant's success underscores why many big corporations, envious of stellar gains reaped by private venture capital firms and fearful of being left behind in terms of technology innovation, are starting their own corporate venture funds. Among companies that have jumped into the game are Lucent Technologies (NYSE: LU), Nokia (NYSE: NOK), Cisco Systems (Nasdaq: CSCO), and Microsoft (Nasdaq: MSFT).
STRATEGIC FOCUS
Based in Santa Clara, California, and in Munich, Mustang functions as a unit of the company's Information and Communications Networks subsidiary, focusing on young companies developing new technologies related to networks for telecommunications, data, and the Internet. Like other corporate venture funds, Mustang hopes to profit by getting a jump on technology innovations and new product development. "This is a way to complement internal resources with innovation from the outside," Mr. Christensen says.
Of course, financial rewards also help. Of 18 companies receiving Mustang funding, seven had launched initial public offerings by the end of last year, including Sycamore Networks (Nasdaq: SCMR), Phone.com (Nasdaq: PHCM), Extreme Networks (Nasdaq: EXTR), and Efficient Networks (Nasdaq: EFNT), each of whose shares have rocketed. Asked if Mustang's parent company is happy with its fund's performance, Mr. Christensen says blandly, "We hope so."
Ralph Petroff, chairman, CEO and president of Time Domain, says he was impressed with Mr. Christensen's "dry wit" and nifty soccer skills, demonstrated once to his kids. Mustang invested $5 million in Time Domain in November.
Huntsville, Alabama-based Time Domain is developing chip designs based on "time modulated ultrawide bandwidth" architecture, a low power signal for transmitting voice, data, or video. Mr. Petroff initially met Mr. Christensen in March at a Red Herring Venture conference. Founded in 1987, the company has grown quickly over the past few years, raising a total of $52 million. "As a strategic partner, Siemens is involved in so many different areas, our technologies fit in many of their applications," Mr. Petroff says.
At Lightlogic, just down the road from Mustang's Santa Clara offices, President and CEO John McGraw says a small Siemens investment helped cultivate a working relationship with the German giant, providing his company both with a chip supplier and previews to new chip technology. Siemens "can understand the value of what we're talking about," he says. Lightlogic, founded in 1998, is developing laser-based components for optical data networks.
Although part of a Germany-based global conglomerate, the vast majority of Mustang's investments, about 80 percent, have been in firms based in Silicon Valley and elsewhere in California. In the future, Mustang will be considering more Europe-based startups. "It's no secret that Europe has been behind on the Internet," he says.
A BREED APART
Mustang's crew of nine people works closely with Siemens Information and Communications Networks, with the goal of ensuring that it invests in technologies that'll ultimately benefit Siemens products and sales. Its mission is different than Siemens Venture Capital LLC, a traditional venture fund, and a venture unit at Infineon, Siemens's semiconductor company. Mr. Christensen says his group is interested in groundbreaking innovations and future generation technologies targeting global markets, rather than conventional product development. Hot spots include wireless communications, optical technologies, and high-speed networking.
Like other investors, Mr. Christensen looks for smart entrepreneurs, but says he's turned off by people who are "overly confident" and who "don't listen."
Mustang officials have been making their investments in later rounds, preferring to follow the leads of traditional venture capital firms. But they plan to be more aggressive about joining first rounds and seed funding.
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