Venture Capital – UBS unveils technology initiative

UBS recently announced that it has allocated some CHFr500 million (a310 million) for investment in technology and Internet-related ventures in Europe and Israel through its private equity arm, which will co-operate with the Internet banking group within Warburg Dillon Read.

The bank, which last year raised a $500 million US technology fund, made its decision to address the European technology venture market some months ago, but delayed a formal announcement until it had laid the foundations of its portfolio. Robert Kahn, who heads UBS Private Equity’s technology investment team, reports that six deals have been completed in seven months under the initiative. Investee companies include Leisure Planet, an online travel and e-commerce business based in Brussels; Systor and Schumann, which UBS plans to merge to create the largest vendor of independent IT services in German-speaking Europe; a fourth-generation Internet portal telecommunications network due for roll-out in April; DealTime, an Israeli/US independent shopping comparison company; and a semiconductor intellectual property company.

UBS intends to expand its core technology team from four to six or eight professionals; this group, based in London, will work alongside UBS Private Equity’s general country teams and benefit from their local execution capabilities. Kahn explains that the technology investment team will also collaborate with the Warburg Dillon Read Internet banking group on a non-exclusive basis: “We are trying to link the pieces without subordinating one to another”, he says.

Three principal factors prompted UBS Private Equity’s entry into the technology arena, with the huge investment in intellectual capital that it entails. Firstly, it became apparent that the group’s country private equity teams throughout Europe were beginning to see strong technology deal flow but having to turn transactions away for lack of a dedicated team. Secondly, the group’s private banking and investment banking operations were developing in-house sources of deal flow. And thirdly, the private equity team began to develop and origination network in Israel.

Now the word is out that UBS is active in the technology market, Kahn says, “companies are approaching us for our name as an investor”.

UBS Private Equity is targeting software, Internet and telecoms services. The technology investment team will undertake true early-stage venture deals and, obviously, subsequent funding rounds and will also invest in telecoms roll-outs and similar larger scale opportunities. “One of the questions we will ask”, says Kahn, “is not Are they good names in the US?’ but Can they attract talent and achieve a valuation of more than $100 million?'”.

The initial allocation of CHFr500 million is likely to be increased given the speed with which the European technology market is expanding. However, Kahn points out that by co-investing with, for instance, participants in Phildrew’s funds, “the CHFr500 million will work like CHFr1 billion”.