Investing with confidence

While many VCs are consolidating their position in the market, Paris-based Viventures is going against the grain and expanding at a rapid rate. Last month, the firm extended its business activities to incorporate the UK market with the opening of an office in Reading. More recently, the firm has ventured into the Nordic region, (see venture capital news this issue) signing an agreement with Stockholm-based CGT Equity Advisors to work as independent advisors.

As well as targeting European investments half of Viventures portfolio is made up of companies based in Europe the firm also has an international reach with offices in San Francisco in the US and Singapore. In line with its global investment strategy, Viventures Partners works together as a single worldwide team, helping portfolio companies penetrate markets worldwide.

Managing general partner, Jean-Pascal Tranie has been associated with Vivendi since 1989 when he worked in various capacities in the energy services division including CEO of the German business unit, general manager of Vivendi’s cable networks division and director of multimedia for Cegetel, Vivendi’s telecommunications arm. He has been involved with Viventures since its inception in 1998. He secured capital commitments from US and European industrial and financial investors and put together a team of investment managers to launch Viventures with 18 limited partners and a portfolio of 49 companies, and now Viventures 2, which has over 30 limited partners and 14 portfolio companies to date. Tranie talks to EVCJ about the company’s strategy and plans for the future.

Viventures has chosen the mature UK and Nordic markets as target areas for expansion. Will you face difficulties with the high level of competition fighting for deals?

Viventures is focused on early stage investment in the information technology and telecommunication sectors and has both the capital and the expertise to effectively compete in these markets. There are a number of innovative companies in the UK developing products pertinent to our key markets namely optoelectronics, semiconductors – and the Nordic region is a leading European market for broadband Internet and wireless technologies. Within Europe, three per cent of households in Scandinavia are broadband connected and it is a key market for fixed and wireless mobile communication – almost half of the population there have adopted wireless phones as a principal communication source. In the UK and in the Nordic region, through our recent agreement with independent advisors CGT Equity Advisors, we have recruited investment managers with specific experience in these particular sectors. Vivek Tandon in the UK has over a dozen years of technical expertise in optical systems, optical networks, and optical components. In Stockholm, Hadar Cars and Eddy Gryvelius both have very solid professional backgrounds, notably cellular technology and applications, and a firm understanding of the mobile industry.

We are optimistic about deal flow in these markets. It is true that the UK and the Nordic region are mature markets, but you have cycles of opportunity. There is a culture of serial entrepreneurs and there are excellent universities in these regions and a good network of contacts means that in spite of competition you can still find the deals. In Cambridge, Scotland and Ireland in particular we see a very broad spectrum of opportunity.

Are there any other key markets you would like to target?

Obviously outside France, the UK and the Nordic region, we see that Germany is an interesting and strong market, particularly for the telecoms sector. We will probably set up an office in Munich early next year. Munich is a leading high tech centre in Europe and along with Hamburg, which is more focused on the multimedia sector, and Dresden, is ranked among the top 12 high tech cities in the world.

We are trying to establish an equilibrium and would try to avoid over-stretching ourselves by opening too many offices and over-staffing. There will probably be smaller offices in London and Munich with our professionals working on average three days a week in those offices and the remainder spent in our Paris headquarters. It is very important in a VC business to share experience and understanding of the deals and this is achieved by maintaining close contact with our Paris base.

We have expanded significantly this year. Our headcount stood at 25 at the beginning of the year and it now stands at 44, including CGT. We currently have 13 senior investment managers and seven junior investment managers. There are no imminent plans to grow the team further as we have done most of the ramp up now.

You are in expansion mode when many VCs are consolidating their position. What are your views on the current environment for VCs?

The current environment has made entrepreneurs more realistic about their valuations. This is an excellent time to invest in undervalued start-ups and large funds which have capital to invest are looking closely at these undervalued markets, particularly at developing companies which provide breakthrough technologies which increase efficiency and reduce costs.

What we are seeing, in spite of the bursting of the Internet bubble, is that the underlying trend still stands. Development of the Internet, broadband and wireless are all changing the world. We sometimes forget that this revolution is incredible, but, especially as far as the Internet is concerned, still not user-friendly. There is still room for improvement and there is a strong demand for software to make products more user-friendly. With modern technology, there has been an incredible change in the way people are working and even living and so there are still many opportunities for improvement and innovation.

What attracted you to investing in the VC market?

The attractions are the unique combination of entrepreneurship, diversity and forward looking ideas, concepts and technologies. Also, it is an interesting time to be part of a truly revolutionary sector driven by the acceptance and growing use of mobile communications, the Internet and the PC. We are investing in a time where mobile and Internet are changing the world.

I have been involved in venture capital investing since 1998 when Viventures Partners was created. Of course at that time the euphoria surrounding the Internet was creating some excessive behaviour e-businesses were popping up everywhere! Since then, the economic situation has changed considerably. Since the beginning of this year we have seen, for the most part, more professionalism in projects and business plans. We are seeing more interesting technology-based start-ups with more seasoned managers running the show. What is essential in the space we are targeting is a strong technology base and the right marketing strategy to complement the company. The combination of these two factors is mandatory.

You closed Viventures 2 in August, how long will this take to invest?

We started fund raising for Viventures 2 about a year and a half ago and closed a few months ago with e638 million. We are now sufficiently funded to take advantage of present and future market opportunities. We have already committed about ten per cent of the fund in 14 companies in Europe, the US and Asia, but we’re investing quite carefully at the moment. We hope to be fully committed in three to four years in around 60 companies.

Describe your investment philosophy. What do you look for in an investment?

Our philosophy is to bring not only capital but to provide start-ups with access to high-profile industrial and financial investors. We look for innovative breakthrough technologies in our key investment sectors with solid, well-defined business models complemented by an experienced management team. The quality of the management team is essential. You need the right skills to make it work. A good business plan will fail if the management does not work well together.

Where do you source the majority of your deals and what is the quality of deal flow at the moment?

We have investment managers on board who have a deep understanding of the sectors in which we invest and who are keeping an eye on changes in the industry. Our management team has hands on experience in our specific sectors of investment and maintains close networking relationships. The management team also works closely with our limited partners as well as with a diverse network of research and development experts. We try to be proactive and choose projects that relate to changes in the market we have identified.

There are a number of very promising companies in our target markets which we are evaluating at this moment. Our outlook is definitely optimistic for a mid-term market bounce-back. France is very interesting at the moment and we tend to see good deals emanating from Germany. A third of our deals come from the US. Deal flow is good Stateside, valuations are reasonable and the projects we are receiving are interesting.

How is your portfolio of investments progressing?

I would say that in the current environment these companies are progressing well. As far as exiting companies are concerned, it’s clearly a tough time for IPOs, but there are other interesting exit opportunities, for example, trade sales with key industrial players. Again, Viventures Partners remains optimistic about market recovery, but it’s a tough market and for the short term, we don’t see big things happening.

However, we’ve made numerous successful exits from the first Viventures fund such as iFrance, Cyras, LightLogic and nCipher. For Viventures 2, it’s too soon for a clear prognosis, however companies in which Viventures 2 has invested are developing steadily despite the current market situation. We have high hopes in particular for companies such as CloseCall America, a full service telecommunications company offering local and long distance, wireless, Internet and prepaid services, and In-Fusio, a company providing mobile operators with a global game service.

What do you consider the future trends in the information technology and telecommunications sectors?

We are looking at several segments, which in our view hold great potential. These include optics and photonics manufacturing and the extension of the optical chain to semiconductors; segmentation of networking equipment; middleware, quality of service and enabling technologies, which allow telcos to create and develop value-added services and operate diverse networks and the acceptance and growing use of mobile wireless communications. And last but not least, we are looking at user-friendly customer interfaces and tools which adapt to the user and not vice versa. For the moment, expectations are still way ahead of offers for mass market products for consumers who are not computer savvy but who make up the majority of the market.