Nokia looks to future with fund

Last week Nokia Growth Partners secured its biggest fund yet from its Finland-based mobile handset company limited partner, Nokia. The $250m the firm has raised for its third fund, follows a $225m second fund, according to Bo Ilsoe, a Nokia Growth Partners managing partner.

The commitment is a bold move from the Finland-based mobile phone company, which lost its 14 year crown as the biggest manufacturer of phones globally last year to Samsung, the South Korea-based industrial conglomerate.

Arguably it is a sign of the importance of corporate venturing in the current environment. In the past, it has been common for companies to respond to a tough market environment for a listed parent company, to cut the corporate venturing unit to appease shareholders. By contrast, Nokia has doubled down as its parent company stages a broader fight-back which has seen a more than doubling of its share price from last year’s lows and a return to profitability in the fourth quarter of last year. Ilsoe said:  “We think [the fund] is a great testament to how Nokia is long term committed to the venturing model through thick and thin. They are taking the long term view as to why it is important.”

This staying power is in line with the broader industry. Research by London Business School’s Gary Dushnitsky has shown at present more than 40% of corporate venturing units have been operating for four years or longer. This is longer than the average chief executive, suggesting corporate venturing is not just a whim of the corporate over-lord.

The fundraising is certainly a sign that corporate venturing units, which can return cash will be rewarded, even if the parents’ resources are not what they once might have been. Ilsoe said the firm had recently “returned quite a bit of capital to Nokia” through exits including the sale of Swype, which was acquired for $102.5m by Nuance, of Summit Microelectronics, bought by Qualcomm, and Netmagic bought by NTT], as well as the initial public offerings of Morpho and Inside Secure.

The corporate venturing unit is measured “by design”, according to Ilsoe, on its financial prowess, yet it has also managed to achieve significant interaction between its portfolio and Nokia. Ilsoe said: “At any given time 70% to 75% of our portfolio has meaningful engagement with Nokia.”

Ilsoe added the strategic moves of Nokia, can influence the corporate venturing unit’s strategy, such as Nokia’s recent partnership with Microsoft, which has seen Nokia Growth Partners more actively target the enterprise sector, leading to its investment in Intermedia, a provider of cloud services to small and medium-sized businesses and the world’s largest provider of hosted Microsoft Exchange. A presentation by Nokia Growth Partners on its strategy and portfolio can be found here.

Ilsoe said the corporate venturing unit seeks to balance decision-making independence, with a collaborative approach with its parent.

He said: “We have our own internal decision making, but we make a capital call to the CFO [chief financial officer] team, who make sure there is no conflict of interest or issues with the investments we were not aware of. It is a collaborative approach. It has been a very effective working relationship. They respect the diligence and rigour of our deal-making, yet there can be strategic initiatives we are unaware of.”

Expect the first investment from Nokia Growth Partners shortly. With an expanded presence in China, and 10 investment professionals globally, this next fund should be a crucial one to ensure the Finland-based handset company keeps on top of innovation.