New Nokia Fund Designed To Nurture Employees’ Ideas

Instead of shying away from the venture capital industry like so many of its peers have in recent months, Nokia Group seems to be doing just the opposite.

Perhaps in an effort to actually strengthen its corporate venture activities, the mobile telecommunications company is expected to announce today that it has made a E40 million ($35 million) investment into the Nokia Early Stage Technology Fund, which is aimed at providing early-stage financing to new business ideas that come from company employees.

There is a slight twist to its strategy, however. Instead of plugging cash into initiatives that will in some way advance Nokia’s core technologies, the fund will focus on developing business opportunities that fall outside the Helsinki, Finland-based company’s telecom niche.

The fund will serve in-house entrepreneurs, by giving them seed capital to develop new business ideas that Nokia may or may not benefit from down the road.

“We are looking at opportunities that are closely linked to Nokia’s core vision, but have an uncertain value,” said Petteri Terho, managing partner of the new Nokia investment vehicle. “The fund can help maintain a corporate option while giving entrepreneurs the space to develop their ideas.”

Before the fund was created, Nokia simply didn’t have enough time to delve into ideas that may not amount to anything.

“There are good opportunities out there that aren’t really linked to our core business, so we really couldn’t focus on them,” said Damian Stathonikos, the communications officer at Nokia Ventures. “We sold 130 million mobile phones this year. We’re busy, so we set this up to look at what’s was going on in other areas.”

How exactly the fund’s capital will be allocated is still unclear. While Nokia is committed to giving about 15 to 20 internal entrepreneurs somewhere between $1 million and $3 million in financing to get started, Terho said that the company hasn’t yet decided whether it will provide its early-stage companies typical incubator services – like office space and interim CEOs – or simply take board seats and offer words of wisdom from the sidelines.

And as for location, initially the fund will work in Europe, but is expected to expand its investment sphere into the U.S. and Asia.

Although Nokia is expecting to be a sort of parent to these infant companies, it also is willing to invest alongside other VC firms.

And if and when its portfolio companies’ ideas come to fruition, Terho said he is not sure that Nokia will get anymore than, hopefully, a good return.

“We’ll make an investment, get some equity, play it out and see how things develop. Every venture capital firm needs to exit,” he said. “We prefer the products that come out of this sell to Nokia if we want them, but they don’t have to. If there is a better offer on the table, then the company could go to an external party.”

Nokia has not yet made an investment out of the fund, but hopes to start spending early next year.

Additionally, considering that Nokia is the fund’s only LP, Stathonikos said that the d40 million should be enough cash for now, although Nokia has reserved the right to add capital at any time.

The Nokia Early Stage Technology Fund is the company’s third investment vehicle. Nokia raised a $150 million fund in 1998, and still has some dry powder left from the $500 million investment vehicle it raised in 2000.

Nokia is not the only LP that invested in those funds, but it is the majority shareholder, Stathonikos said.

The funds have put money to work in such companies as Par3 Communications, a customer management company, and PayPal Inc., the online bill payment company used by online auction site eBay.

Nokia Ventures invests in IT- and IP-related start-up businesses and technologies that mesh with its parent company’s core business.

“These funds have been just like any VC fund, but we target the mobile and technology space. We are purely out there to get healthy returns on our investments,” Stathonikos said.

Danielle Fugazy can be contacted at:Danielle.Fugazy@tfn.com

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