On Feb 25th, 2021, I hosted “Investor Chat and Founder Pitch” event with YingYing Huang, the Investment Manager of Telia Ventures, about how to fundraise from corporate venture capital and work with large corporations.

Telia Ventures is the venture capital arm of Telia Company. They look for innovative ideas in consumer tech, enterprise software and network.

We invest in Series A and B, with ticket size range from €1M to €5M, across Northern Europe and selected innovation hubs globally. We want to partner with teams that have ambitions and capabilities to elevate products, services and how we connect in society in a secure and sustainable way..

YingYing Huang and her team have invested in some of the fastest-growing Nordic companies, such as the E-commerce for refurbished smartphones startup Swappie, and Human-eye resolution VR/XR startup Varjo. Before joining Telia Ventures, YingYing has worked in NFT Ventures as the Senior Investment Analyst and completed her MS in Finance at Stockholm School of Economics.

The panellists in the discussion include:

You can re-watch the event and read the key learnings below:

Watch the recording here

Q: Thank you so much for joining us. You currently work as an investment manager at Telia Ventures, which is a corporate venture capital arm of Telia company. You are born and raised in Taiwan. Would you please take us the beginning of your journey?

So, I moved to Sweden five and a half years ago to study my Master's degree at SSE in Finance. Luckily, I started to work with VC fund, pre-seed and seed stage Fintech fund called NFT ventures during my second year of Master. That just turned into a full-time position and ever-growing love for investing.

Fast forward almost five years later, I am with Telia Ventures as an investment manager. My role basically covers all of our investment activities from scouting, meeting and evaluating startups to closing different deals and also working with our portfolio companies.

Q: Please share with us a little bit of the history of Telia Ventures. What made the Telia Company the decide to set up Telia Ventures back in 2018?

Making investment is nothing new for Telia company. Before the current team was set up in 2018, we actually did some different kinds of investments, usually from M&A perspective or from product partnership perspective.

You might have heard that, for example, we invested in in Spotify before their IPO, and we also invested in Zound Industry, which manufacturer headphones. So, previously, Telia did some investments more from a partnership perspective, and it's a little bit more opportunistic.

But then, after a few successful cases by for example, Spotify, we want to be able to better map the market to identify potential startups from early on, and engage with the community more proactively. That's why we set up the dedicated team only working with venture investment

So, it's a little bit different from I would say, when it comes to how we approach startup and how we operate as a team. It's a little bit different than before. Right now, we have five people in the team, me and three other investment managers, and also Head of Ventures.

Q: Can you share with us a little bit of broad view of Telia Ventures’ investment strategy? How does your team position as a strategic Investor or a financial investor?

I think we consider ourselves both financial and strategic investor because we believe to be a good strategic investor, you need to be a good financial investor first. So, when it comes to investment activities, it is pretty similar to, I would say, the same investment process as any other venture fund that you might know.

When it comes to the stage, we invest in early stage, usually Series A and B. However, we like to engage with startup founders early on. So, we usually start to follow companies from pre-seed and seed stage. When it comes to vertical, we invest quite broadly, everything around connectivity. So, it can be both consumers, but it can also be enterprises or even very deep tech network related investment.

We invest in Nordics and Baltics because that's our home market. We also look selectively outside these regions. For example, in Germany, in UK, and in Silicon Valley.

We usually invest 1 to 5 million euro as the first ticket, and we would like to follow the entrepreneur journey for as long as needed.

Q: Would you please give us a broad view of the companies in your current portfolio?

We have made seven investments with the current team. However, we actually already exited two of them. So right now, we have five active investments.

The first company that we invested is a company called Aporeto, a cyber security company based in Silicon Valley. And that company was sold in 2019 to Palo Alto Network, which is the leading cyber security firm based in San Francisco.

The second one is Swappie. They are one of the fastest growing company in Finland right now. They do mobile phone refurbishment. So, it's an ecommerce platform for consumer to sell and purchase refurbished iPhones.

And the third one is a company called Subspace, also based in Silicon Valley. What they do is that they work with network optimization for gaming industry.

The next one is a Swedish company called Iotcomms. It's an early-stage company working with a real time communication across audio and video. The next one is a company called Volterra. What they do is they developed a distributed cloud management platform for companies to manage their product development. The company is based in San Francisco, and beginning of this year, was actually acquired by F5 networks.

The next one company is a company called Challengermode. We did that investment last summer and co-invested together with Alibaba eSports and also with Swedish football legend Zlatan. He was actually a co investor in that round with us.

At the last one, it's a Finnish company called Varjo. It’s a VR headset manufacturer based in Helsinki. They do industrial human eye resolution headset for VR use in heavy industries. As you can see, it's very different type of investments that we do both consumers, both enterprises, network and deep tech.

Q: How does Telia Ventures evaluate potential startups? What is investment the process?

Investment process is pretty much the same as any other VC fund. We have our own investment committee that help us make the decision. We engage actively, both pre investment and post investment.

But then on top of that, we also engage strategically with different stakeholders from Telia, which means that we want to be able to identify if there's any strategic collaboration potential, sometimes even before the investment.

We do not require the commercial agreement to be signed at the same time as investment agreement. But we would like sort of starting to engage the founder with the internal Telia expert to discuss the way forward. So, I would say, that is additional part to our investment process.

Q: Do you prefer to invest in together with other investors?

We can lead but we often syndicate with other investors as a strategic investor to the round. So, it really depends from case to case. If the business is much closer to Telia’s core business, then we have higher incentive, of course to lead the round. But otherwise, we are very happy to be part of the syndicate.

Q: As a founder, sometime we found this challenge when we talk to the VC between when it comes to valuation between the traction that you have so far, and the projected forecast that you have maybe in three to five years. What’s VC perspective on valuation?

I would say it could be quite valuable to benchmark against different kind of more mature players in the same field. For example, if you are a social media company, then you can benchmark against, for example, the similar company in a similar space. For example, if you have like 10,000 users right now, so what would be the valuation for that company like a market leader at the time when they had 10,000 users?

Otherwise, there's also different kind of rule of thumbs. For example, when we value software companies, but you should look into the revenue recurring revenue for the last 12 months for like the next 12 months. Very easy rule of thumb will be used usually 10 to 30x of the yearly recurring revenue.

So, let's say if you have like, 1 Mmillion Euro right now, the valuation should be, let's say, between 20 to 25, depending on the industry. So, there are some of benchmarks and multiples that you can use.

Q: You said you are both a financial and the strategic investor. In my experience, corporate venture capitals seek investing earlier nowadays. Maybe there's a joint development program with the startup.

And then suddenly, after six months, the founder wanted to go to a slightly different direction. You probably have a sponsor internally, someone from commercial side who is interested in technology and project. How do you balance that against the interest of the company that the startup may have to pivot?

I know historically, a lot of CVCs want or need to have internal sponsor to for the investment case before they can make an investment decision. However, I see more and more and also ourselves actually don't require internal sponsorship to make an investment. But of course, it's for both parties’ interest to engage potential collaboration early on.

So, for us, the way we work is that we believe that to be able to be a good CVC, we need to be a good VC first. It means that we would definitely put founders’ interest upfront. But of course, along the way, we will also act as like a bridge between our internal stakeholders and the startup teams to make sure everything is communicated in a transparent way.

If the startup needs to make changes to their business model, we will definitely support what's the best for the company going forward. But when they need, for example, product expertise, or relationship building with Telia business units, then we will assist on the way.

Q: Historically, some CVCs have done exclusivities and blocking other competing CVCs. What about your team?

A: That won't happen with us. We want to make sure the startup founders are comfortable working with us and choosing us as investor. In a sense, we are also competing with other VCs and CVCs. We need to make sure that we are founder friendly.

Telia is also very aware of the new way of working with young startups. You can't just block all the opportunities for them because that will kill them. And that's not a scenario anyone wants to see. So, of course, we need to change our way of working and that's a never-ending learning process for everyone in the ecosystem.

Q: What kind of support you offer to founders besides the capital? Can you elaborate that with some examples?

I would like to mention that we establish expert network called Telia experts. These are a group of individuals across all the countries and across all product areas inside Telia group.

So, this is basically a group of advisors or experts who help us to work with startups. The reason I mentioned it is because we think this is a resource that we can provide to our portfolio companies to open up different opportunities.

For example, like Challengermode, the e-sport platform that I mentioned. Telia acquired Assembly (Assembly Organizing Oy), the tournament organizer in Finland; we just launched our own eSports Series. So, we connect and continue to help build the relationship between Telia eSports team and Challengermode.

If Telia would like to consider to have a partner in tournament, Challengermode can be one of the considerations that they can think about. So, it actually ended up ongoing partnership for part of the Telia eSports Series between Challengermode. That's one of the cases how we actually bring strategic value for Telia and also for startup on top of it the capital that we invest.

Q: What are some of common mistakes you have seen founders make when they're trying to raise like 10 million set and beyond?

I think the first question that you need to ask yourself is whether you really need to raise the money. And if you are actually ready to raise money from VC because raising money from VC comes with a lot of responsibility and also expectation.

You might have heard the joke that the investor founder relationship can last longer than marriage. So, you want to make sure that you pick the right investor to be your partner on this journey.

And you also need to be aware that, for example, there will be like board responsibilities, governance, etc. Different kinds of requests from the investor if you take money from them. Another question will be like, do you really need money right now and how much you need?

That's also a lot of questions you need to consider before you actually reach your hands and feet into the fundraising game.

Secondly, I would like to remind startup founders to think carefully about your cap table. Because when you if you're just raising 10 million SEK, so it's usually seed stage or even earlier. So, there's a still a long way to go. You want to make sure you have enough ownership for future dilution, and also to reward your talent to be able to attract talents on your team. So, make sure you think through when it comes to the captable and how much that you should own.

And the next one, I will say, timing. Some startups think that I just need to spend the next four to six weeks to raise money. But if you are that early stage, it can sometimes take a little bit longer for you to build a relationship. If you're first-time founder, it might sometimes even take you like a month or two just to book the first introduction with investors. So, make sure you have at least a three to six months of runway when you start the fundraising. Don't stress yourself out.

The last point, I would say, think about the focus. I see a lot of startup founders want to sort of conquer the world, we want to work with multiple customer groups, we're going to work with different type of industries at once. But at that early stage, I think it's very important to focus to better your product, and to focus just a couple target customer group. Then when you have the traction, you can have sort of a product driven growth, I think it's more sustainable.

Q: We should stay focused as entrepreneurs. But at the same time, we need to have a possibility to experiment to see what's the vision and how you know what's the direction we should take?

I think that stay focus is different from the initial user research or experience so when you figure it out which area that you want to work with. But of course, at the beginning, before you even focusing on the target customer group, you need to figure it out the market product fit.

So, I think that's a little bit different. I think you need to have some sort of iteration and experience at the beginning. But then when you find a product market fit, then you should focus on scaling your product in a target customer group, later when you get the traction, then you can expand.

Q: Some of the startups that applied to SSAP have complex legal structures with multiple multiple subsidiaries in different countries. I think as an investor it is very important to understand who owns the IP. So, when you're investing, or how does your team approach that when you're looking your deal flows?

This is a topic that we always cover but not at the very early stage. This is the DD process to understand which entity owns the IP. It is fine to have subsidiaries. Some companies may have the subsidiaries for taxation and hiring reasons. The rule of thumb is that we always want to invest in the parent company. The IP should be within the holding of the parent company.

Q: What instruments do you use to invest? How much stake do you take in the companies?

For us, we invest in straight equity. Convertible is also a common way to make sure you can participate the next round. It can be a competitive round of a popular company and we want to make sure we get a seat. So, we have done convertible between rounds. But we prefer straight equity. We have also done SAFE investments. This is usually for very early stage when you don’t want to set the valuation right now but then you still want to bring investors from early on. YC in the US do a lot of SAFE investments. In terms of ownership, it is usually 5 – 15%.

Q: Which areas that Telia is looking to invest in the future?

One area that we spend a lot of time to look into is the future of work. How do you ensure teams in remote setting can work efficiently and keep the engagement high? We believe that the hybrid model will continue even after Covid. We started before Covid but also partly driven by Covid, smart home is an interesting area because we spend most of your time working from home. Different smart home solutions are something we see fit really well with Telia Smart Family offering. On consumer side, we also look a lot into digital health, not only the treatment side, but also the preventive care side which we find interesting.

For enterprise side, 5G remains quite important to us strategically. 5G related application is the area which we will continue looking into. Also, different IoT for industry setting. Last but not least, different kinds of enterprise solutions for workplace which is connected to future of work. For example, the future event platform which facilitate different kinds of work setting.

E-sport and gaming is always our favourite.

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