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$300m fund for mobile Internet

A $300 million venture capital fund targeting investments in the mobile Internet development space has been formed by four partners, with each committing $75 million to the venture. The fund will be called Ericsson Venture Partners. The partners in the fund are Ericsson, the Swedish communications giant; AB Industrivarden, one of Sweden’s largest active ownership holding companies; Investor AB, the Swedish long-term active global shareholder in multinational companies and private equity investor; and the US investment bank Merrill Lynch.

Ericsson Venture Partners will invest primarily in mobile Internet ventures and technologies, focusing on Europe and North America. Investments will cover all aspects of mobile Internet technology, including network infrastructure, services and applications. Ericsson’s president, Kurt Hellstrom, says expectations are that there will be more mobile Internet users than fixed Internet users by 2003, which will place great demand on network builders and service providers.

Details of how and by whom Ericsson Venture Partners will be run remain to be formalised. It is intended that a team will initially be based in Stockholm and that a New York office will be opened later. For now, explains Clas Reuterskiold, chief executive officer of AB Industrivarden, the owners will run Ericsson Venture Partners until a managing director is appointed a process that is currently under way. “At the moment we are running [Ericsson Venture Partners] through a committee consisting of all of the investors. [Ericsson Venture Partners] will be in operation shortly.”

Once a managing director is appointed, the team across Stockholm and New York is expected to run to 15 to 20 personnel.

The investment approach will necessarily be flexible since, as Reuterskiold points out, the fund is a joint venture and as such will not be constrained by ties of external institutional investors. However, the aim of the joint venture is clear. “The prime aim for this venture is to earn a high return on its investments. One advantage of this joint venture organization is that it can capitalize, for example, on the technical expertise of Ericsson and, later, Industrivarden can offer exit expertise”, says Reuterskiold.

For Merrill Lynch, this would appear to be an attractive side step as arguably the investment bank is conflicted out of running its own straight private equity operation by its private equity placement agent activities. Since 1995 Merrill Lynch has helped to raise over $50 billion globally in funds for private equity investors such as Charterhouse Development Capital, Cinven and Silver Lake. With typical fees hanging at around two per cent of the total amount raised for the fund, that’s a $1 billion income that Merrill Lynch is unlikely to turn its back on lightly.

Merrill Lynch’s other private equity interests largely lie with its acquisition of Mercury Asset Management, which included Mercury Private Equity, announced in November 1997. Mercury Private Equity invests its parent company funds and on behalf of pension funds.