German VC chief is glad he didn't set up Silicon Valley office 3 years ago

When German communications giant Deutsche Telekom last year helped to launch a new investment firm, it opened an office in Menlo Park and put its former M&A chief in charge, Vicente Vento.

Vento's unit takes over the venture activity Deutsche Telekom had been doing since 1998 through T- Venture, but his new group is designed to be more independent.

That CEO of Deutsche Telekom Capital Partners, Vicente Vento, spoke with me last week about why he thinks the arrival of his new unit on Sand Hill Road is good, despite coming at a time when things appear to be slowing down.

Vicente Vento, CEO of Deutsche Telekom Capital Partners, opened an office in Menlo Park. He spoke with TechFlash Editor Cromwell Schubarth for this week’s Q&A.

Vento's unit takes over the venture activity Deutsche Telekom had been doing since 1998 through T- Venture, but his new group is designed to be more independent.

It recently led a $13.5 million funding of Newark-based Replay Technologies and last year invested in San Francisco-based Nexmo.

The following Q&A has been edited for length and clarity.

What is your relationship with Deutsche Telekom? Is it like GV, formerly Google Ventures, or Norwest Venture Partners, where you have a corporate entity that is your sole source of funding but operate independently?

Yes, I like that you used Google Ventures as an example. We have been very inspired by them. We have a general partner/limited partner structure. The general partner is Deutsche Telekom Capital Partners Management, which is actually majority owned by the people working at the partnership. Deutsche Telekom is our corporate sponsor and provides the funds for the limited partners to invest.

The partners co-invest in that structure with their personal money. So we’re very financially orientated.

And now you have opened an office of the partnership in the Valley, right?

Yes, we opened an office on Sand Hill Road, just opposite the Rosewood Hotel. We want to make sure that people know we are in this for the long haul. We want to be part of the ecosystem and tradition of venture capital that expanded from Stanford and Sand Hill Road and all over the Bay Area and into San Francisco.

But we also very much want to differentiate from others here in that we want to take some of that resource that is Silicon Valley and try to expand it beyond the geographic boundaries of the Bay Area into Europe and and Israel. We and our corporate sponsor see this as a bridge between these three hubs. That’s how we want to position ourselves.

So we’re super excited to have officially opened our office here.

What’s your reading of the current climate? A lot of venture folks have been talking recently about a resetting of the venture market with valuations dropping. Are you seeing that? If so, how does that affect what you do?

We definitely see that. We started investing here in April 2015. Last year we looked at a lot of good companies but they were at bad prices. So, personally, right now I feel very good about not having deployed a lot of capital last year. I see definitely more opportunity right now than what we saw six months ago and I think that we will see more opportunity in the coming six months.

I would much rather be in my place now than if we had started two or three years ago and we had committed 80 percent of our investments.

What sort of investments have you made in Silicon Valley and in Bay Area companies?

We opened for business with our new fund last year, but Deutsche Telekom has been in this space for a very long time and has a long heritage of investing in venture.

Our new fund has done four new investments. Two have been in Israeli cybersecurity companies, one is here in Silicon Valley and another is based here with its R&D in Israel.

The Silicon Valley-based company is Nexmo in San Francisco. It’s a cloud communication platform. Twilio is an important competitor. Nexmo has been our largest investment to date.

The one that is here and in Israel is a media technology company in the virtual reality space. It’s Replay Technologies in Newark. They record live sports events and then they are able to offer you that content in a virtual reality environment from multiple points of view. They actually partnered with Intel at the Super Bowl and at the NBA All-Star game. It’s really cool stuff that they’re doing.

How does that illustrate what you are looking to invest in?

What we get really excited about is the world of opportunities that is developing from essentially everything involving consumers and their devices being hyperconnected. Anything that plays around this mantra of the connected world is something that is at the center of what we want to do.

Virtual reality is one subset in that space and we have identified four verticals where we want to spend all of our time, but we’re super opportunistic about it. Cybersecurity is another, as is platform- as-a-service, software-as-a-service and media technology. So we’re fairly broad at this point.

So why open an office here after all of these years without one in the Valley?

This is the center of the world for venture investing. There is an ecosystem that has been built over about 80 years and we very much want to become a part of that ecosystem. Deutsche Telekom has been a part of that ecosystem from a very corporate perspective for a very long time. Now we’re taking the next step with our investment management group and $2 billion under management and we want to be sort of at the center of that ecosystem.

But more importantly, we want to build this bridge between Silicon Valley and Europe and Israel. There’s been an incredible hunger for technology and for talent here in the past year or so. Late- stage valuations got very high. We see in Europe and in Israel a lot of talent with engineering backgrounds and a lot of entrepreneurs with very good ideas but they are just geographically over there. So we really want work with this notion that Silicon Valley is no longer a region, it is actually a platform and we want to be the bridge that connects it to those other areas.

What is similar and what is different between the three regions you concentrate on?

Silicon Valley is extraordinarily fast and has a tremendous amount of talent. But that extraordinary hunger and demand for technology has caused an imbalance that has driven valuations up. So now there’s a huge disparity in valuations between the Valley and the rest of the world.

Israel’s R&D is extraordinary, created by technologically extremely smart people and it has developed very deep intellectual property resources. We love that because we’re very technology-focused. Much of what has been created there has been sold as technology rather than as a business.

Europe is a very good decentralized hub, also with a lot of talent and a lot of great engineers. We can find great companies at a fraction of the valuation that you’re paying for great companies in the Valley. You can find a really great developer community in many geographies in Europe that will be 10 times less expensive than what it would cost in Silicon Valley.

So what does an investment by your group bring to a Silicon Valley startup that getting local money doesn’t get them?

We not only bring capital with us but we bring the relationships we have with Deutsche Telekom. We’re a separate entity, which helps us to be agile and fast and independent in our decision-making. But we also have corporate strength behind us from our brand and our distribution perspective.

To give you a very tangible example, the two cybersecurity companies that we’ve invested in are testing right now with Deutsche Telekom Security Team. If the testing is successful that will become part of a product portfolio that not only DT will use internally as a large customer but also that it can offer it to its clients, from small and medium businesses to large enterprises.

We’re completely free to do stuff outside of that type of arrangement but to some extent it’s what helps to differentiate what we offer.

So what is the ultimate goal in the investing that you’re doing? Is it the same as your neighbors across the street in the Rosewood, like Andreessen Horowitz? Or is it more like an Intel Capital, which is kind of gathering intelligence and forming relationships that may bear fruit in the future?

Our ultimate goal is to make financial returns on our investments. In that respect, we’re much like Andreessen Horowitz. Obviously, we have a single limited partner and you would have to ask Deutsche Telekom what they want to achieve by putting capital into us.

But from my perspective I think they believe that by having a smart team of people on the ground in the Valley, sniffing around, they can get superior access to innovation. We’re sort of their eyes and ears on the ground.

But my goal is to put cash to work and return more cash.

Cromwell Schubarth is TechFlash Editor at the Silicon Valley Business Journal.