Hans Söhngen (KPN Ventures): Rebuilding a CVC that stopped serving the mothership

0:00If I knew then what I know now, I probably wouldn't have bet my own reputation and career on it. Because it's a really lengthy sort of patience story and building up from the ground a new fund. I needed to turn that around into what's in it for the company, right? Let's be honest. I mean, if we as a VC or CVC want to survive and want to be successful, we need to have our own USB. We can't do the same as the others because if we don't show the value that a big corporate can have, if we can't show that, we're done. I always keep in mind, it's just the word logic. Where's the logic of this deal? Why is it KPNs?

0:43That's what you want to have, a sort of logic combination and something that adds value for customers and gets KPN closer to customers to add more value, to be more part of their daily problems and daily strategy. The exit returns are relevant, but not the number one focus of the company. And they want to see commercial revenues for KPN because of a proposition or because of the commercial partnership. So last year, we were at 20 million plus in revenues. And this year...

1:18Andreas Munk Holm:Welcome back, everyone, to the European VC podcast. Today, we are talking about KPN Ventures. Most corporate venture funds die quietly. In 2021, KPN Ventures nearly did. Five years after, it was set up with a portfolio of scattered bets that nobody inside the company could explain the point of, and a decision was on the table. Should they continue or should they kill it? Hans Söngen was brought in to put the business sense back. Today, he takes us through the whole turnaround. How you go from a purely financial CVC to a strategic one that visibly drives business for the mothership. What he did with the portfolio he inherited and the gut check he now applies to every single deal.

1:58Andreas Munk Holm:Alongside me, as always, for these CVC and corporate episodes, Japa Hoya, he is keeping the financial lens on the table. Hans, welcome to the podcast. Thanks, guys. Pleasure to be here.

2:14this show is not investment advice and the hosts of this episode may be invested in the funds and

2:19Andreas Munk Holm:companies featured if we start this really head-on i want to ask you to take us back to what you walked into the fund was set up in 2015 by an external hire under then under the then cfo staffed entirely from the outside what was the logic at the time and when did that stop working Well, I think that's the most important question for CBC, right? Why did you get started with the fund and how did that happen? I think one of the core reasons that KPN started with the fund was something called WhatsApp. And WhatsApp back in the days was a big problem for our texting revenues, high margin texting revenue.

3:01So the fund was set up by the CFO back then, and he wanted to have more eyes or at least the 360 view in the market, new technologies, what's happening? I don't want to be surprised anymore. So that was the reason the fund was started. And so obviously it started as a sort of a tech, early stage tech fund, looking for new technologies. And that has been sort of the core focus over the five, six years that they were in business from 2015 onwards, and also led to a long time period before actual investments went or became close to relevant for KPM.

3:44Andreas Munk Holm:Let me ask both of you a question on that point. Is that a good rest on data? Is it possible for a CVC arm to scout technology enough to make sure that the mothership is not surprised? I, of course, ask this question because we often say that real disruption comes out of nowhere. So if you are in the business of telecoms, you will not find the founder that will disrupt telecoms inside that industry. It will be somewhere that looked like media in the beginning or high school apps, rating apps in the beginning, but then it turns up completely changing the business. It's undoable for especially a local telecommunications company to have that sort of ambition to see what's out there, not only in the telco world, but as you said, also outside.

4:37It's undoable. You need a massive fund that would probably have as much people as the company itself. So I personally don't believe in that direction.

4:49Andreas Munk Holm:Jaapar, what's your take on this? I'm fully supportive of what Hans said, right? Corporate venture units are used as scouts. and often as a supplement for revenue growth in certain areas around the core thing that the corporate is doing. And then I think to a lot of the VCs out there listening in on this, I do not believe in disruption. Startups that disrupt industries happen so seldomly. right? You know, now we can see Netflix under pressure after having killed Blockbuster, right? They're facing their own medicine now, right? So, you know, I think the focus that Hans has is right and I think it's the right way to approach it.

5:42Andreas Munk Holm:So then let me ask you, if we go back to the opening question, which was where did it stop working? When did it stop working? Because we've Now there was a data in the time period of six years-ish. But how did you realize that this does not work? I think it was a few things. The main reason was that the fund was too much related to the CFO at that point. He hired a person to set the fund up, who hired another external person. So their stakeholder management within the company was difficult in that sense. It was difficult to get a broader group of people saying, you know, this is really useful for us, for the company.

6:28I think that's where it first sort of went in the wrong way. Because in 2020, when I talked to people in the company and they said, well, the ones that knew the venture fund, because a lot of people didn't even know it. They were saying more like, oh, okay, that's the CFO's thing. So it was too much his thing instead of a full company-wide approach. So that was what I noticed. And then the second thing was there wasn't any proof of added value after five, six years or too little. I don't want to be too bad-mouthing the previous team because it was their mission to go after early stage tech companies.

7:15And it takes a while before those early stage tech companies go into, let's say, becoming a real company, a real partner for a big corporate like KPN. It takes a while. And if you do get it right five, six years ago, then maybe after that period of time, you have some relevance. So it's a really difficult business model, I would say, for a CVC to go for early tech in a company like KPN.

7:42Andreas Munk Holm:And it is, to be fair, also quite rare. If we look at the CVCs that are out there, most often it's Series A onwards because one, it's where the mothership makes sense for the for the startup. So there's a value add for the CVC. And then on the other hand, there's also that actual collaboration opportunity for the corporate to have with the startups. Yeah, but do you want to comment on this? Like when you see the many corporates out there that are thinking about doing corporate venturing, oftentimes many skew to want to do early stage first, but it's actually not the best idea. No, I think when we talk about, right, there's a cultural fit that we need to take into consideration, right?

8:29It really depends on the corporate culture, what you can make happen. And when we discuss these very early stage engagement by corporates, it can oftentimes be very, very difficult to find the match between, you know, what does the startup do and what does the corporate need, right? So I think it's within that there is a big challenge, right? And I think here, you know, for me, hands to you giving it over there, right? It's kind of like the average lifetime of a CBC is 3.7. you faced in 2020 that you almost died, right? So for me, it is, you know, how did you see this transfer from the early stage activities going into later stage activities?

9:16And then, you know, who wanted to kill you and who wanted you to survive, right, within? I think that's an interesting discussion.

9:25Andreas Munk Holm:I'm super curious to hear the answers to this question because you just basically gave us the diagnosis to kill a venture fund within a corporate. Wrong strategy, not tied to enough people, so it's not anchored in the company. Then how the hell do you end up actually making it survive? I'm super curious to hear that. Well, if I knew then what I know now, I probably wouldn't have had my own reputation and career on it. I mean, it's because it's a really lengthy sort of patience story and building up from the ground a new fund. Expand on that because that's so interesting. So one thing happened.

10:09The fund moved in the org structure from CFO to chief strategy. And that was a person back then that I knew well. So he asked me with my financial background, M &A background, no VC background, by the way, and quite a stint at KPN already. He asked me, how can we move this fund into having impact, positive impact for KPN? And do you want to take on that challenge? At that point, I was ready for something new. I was heading 60, 70 account managers in the sales role in government, B2B. So, I mean, talking about patience, I thought I could handle this, but this was totally different, right? Really specialized team, five, six people, and, you know, really wanting to go for the deals, the right deal, the cool deals with all the other, I mean, VCs to be able to say, you know, we've done deals with XYZ.

11:12and all very important. And I needed to turn that around into what's in it for the company, right? Let's be honest. I mean, if we as a VC or CVC want to survive and want to be successful, we need to have our own USP. We can't do the same as the others because if we don't show the value that a big corporate can have, if we can't show that, we're done. I mean, we should stop investing because we only get the sort of the mediocre deals and the less relevant ones. that they, if they title everybody and if they don't get money, they try us. So that's what you don't want. You want to be part of the big guys, but then with your own USB, your own color, your own brand.

11:54And that's what we've been building. And it's been a long road and difficult also for the people that were in the team at that time. Because they were all good people, but they were just in the team with the wrong mindset.

12:05Andreas Munk Holm:Yeah. You described, Hidro, you described super importantly, the external reason to rejig, so to say, how you operate and think as a CVC. But you also have a very powerful statement that you're in gut check that you use for investments internally. And I'll just read it out from our transcript from our pre-call because I loved it so much. You said, if this investment hit the internal news channel, would KPN people say, smart, that helps us? Or would they say, why on earth are we in this? Where did it come from and how do you apply this? How do you help your team work through using this as a navigational tool?

12:45Yeah, that's exactly. I mean, I always keep in mind, it's just the word logic. I mean, where's the logic of this deal, right? Why is it KPNs? I mean, being in sales before, I mean, if I walk into an office and I want to sell something and it's blockchain, they will never buy that from me. If I can sell a customer something that's in logistics where connectivity is very important and where we need a partner to actually add value to the data that you receive through our network and our gateways. I mean, that's what you want to have, a sort of logic combination and something that adds value for customers and gets KPN closer to customers to add more value, to be more part of their daily problems and daily strategy.

13:35Instead of, I mean, in the Netherlands, and it's sometimes different in other countries, connectivity, it's all sort of considered something that you have. I mean, it's not like, oh, I hope I have a mobile network today. It's always on. It's 99.99, whatever. It's the best network in the world. It's whatever. We have glass fiber to the vast majority of Dutch households. So it's all logical in the Netherlands, right? And you have connectivity, fine. But how can we move into a very slow growing company? Because the market is the market. It gets a bit bigger, maybe. It's also inflation, maybe a few extra services.

14:13How can we get closer to customers to add more value? I think that's a great question you want to answer. And it's, in my view, in an infrastructure company like KPN, you need to find your partners to work this out because it's such a broad question because you serve consumers, business, you serve every industry. So you need to have experts in every industry to help you figure out how you can help your customers in those industries.

14:44Andreas Munk Holm:I'm super curious to hear what you did with your legacy portfolio. So you had some 25 pre-seed seed bets scattered all across verticals. Walk me through that triage. How did you do it? Like, who did you speak to? I like the question because I think I would have probably done it differently being in my position after six years. So let's start with what did you do? And then afterwards, we'll say what should you have done? Well, I didn't do that much, right? I mean, it's like we decided we're going to obviously connect with every company in certain time periods. But we also wanted to ask them, you know, do you see opportunities within KPN, right?

15:28And aren't you tired of talking to people without getting anywhere? And that's the full story also. Besides the logic, it runs into, are people really interested or just being nice by taking a meeting? And that's what happens a lot in my company because it's all nice people, capable people, but they also, why not have a meeting? If you have eight meetings and nothing comes out, I mean, you're toast. So we looked at, we talked to the companies, the portfolio companies, and many of them were already, let's say, in a phase like, you know, we're going into that direction. And that direction is not KPN's direction.

16:07So, and we also said, that's totally fine, right? let's go in the way that you think is best. Obviously with our own view on that. And if it's not our view, we could have sold. But probably, I mean, you know, as well as I do, if you try to sell in a very illogical moment, then you probably have a very fast discount. You need to ride off a lot of investment. So we started to approach the companies that didn't have any value for KPN or no partnership or whatever. We started to look at them purely through a financial lens, like any other VC would do. So we would add to our position if we wanted to maybe protect our position, or if the company is doing well, we could add to our position in a way.

16:58And yeah, we've just been sort of handling these portfolio companies in a financial way.

17:05Andreas Munk Holm:That sounds like a pretty logical way. So why was that not the right way? Why would you have done it differently? What would you have done? Because it takes time. And because it takes, I mean, if I would be, I think I could have moved faster to get where I'm now at after six years, could have moved faster. One of the things I would probably do different is indeed try to show your shares in companies that are probably great, but don't have a match with KPN. I would try to move faster, I think, in that way. That is the cut the losses philosophy. We all know it from stock trading. But in venture, it's equally important, if not more, because this is an upside-driven business.

17:48Andreas Munk Holm:If you're spending all your time trying to deal with to save the last little dollar, then you're missing the potential upside of 10 or 100x at a later point or at something else that you should have been spending your time on. On the other hand, if you want to have, I now realize the time has been awarded to me to build something new, which the time was predominantly going into, I mean, experience, getting the right people on board that do have the same vision as I did and I was asked. It is also a very, very difficult proposition to make coming into the role. saying to the executive team, I'm coming in to manage our venture team.

18:34Andreas Munk Holm:The existing stuff, I suggest we pay an external party to run them out until they're done because we shouldn't focus on them. They're like, are we not paying you to do that? No, no. So exactly. So that wasn't really the ask to me back then. And maybe now I would do that differently. But I think it's now it's going into the right direction. Also, many of those early stage investments back then are moving along nicely. Companies like Wirepass and Minnett and many others are growing into really decent companies. Yeah, but maybe you can comment a bit on how you oftentimes have seen corporates. We've been through a period where we have had quite a few corporates that have had to get out of their venture portfolios.

19:21Andreas Munk Holm:Maybe we can talk about how they oftentimes do that, the role of VCs in this. I think one of the big surprises we got just before the summer was the close down of PayPal. It's one of the ones that have been highlighted as the most successful financial CVC. And here you see a clear cost-cutting exercise where they basically just need to remove the employees, even though the portfolio is a success. We saw the similar situation with Munich Re. I think it was in the beginning of the year. My former employer at Maersk are going through the same exercise. What you see is something that is a situation where the M &A department takes over and all senses and reason is lost and it basically becomes a little bit of a cowboy country where you can see where you can place the portfolio.

20:19So there is no clear structure in this as such. But I think the good ones, they kind of bundle it. They go out and see, okay, here, there is a part of the portfolio that doesn't work. Let's try to sell that off. You know, hence you could actually have done the same and then said, no, here is three that we just want to keep and work with. And maybe you find a balance somewhere in between where you take a new manager in a VCM that can then take care of the strategic assets that are left. And the discussion around as a corporate, right? But if you're standing there, maybe you should invest a little bit more for the greater good of the financial outcome of the portfolio.

21:05So it's a true tool set that you need to develop for this. But luckily, there are companies like Redstone out there that can help you in these situations.

21:17Andreas Munk Holm:So you've got the clean slate now. Now, or at least if we look at it as such, saying now you have a new strategy, you're building a new portfolio. Tell us a bit about how you focus and what every deal has to prove other than the smell test inside the company. So, we look for a certain maturity in a company where there's a clear way forward and also a proven track record with corporates. we would and that's that's something we would value a lot because then i think there's a sense of um when you you can actually judge whether a certain growth path is is is the the the pace of the growth is actual is actually going to happen because it's at corporates normally it's a bit slower i would say than uh than normal and i so we look at the management team what's their experience and and the logic with the certain business units which we really like and have also i mean not everything we touched turned into gold unfortunately because there's a lot of experience that we that we had and and people being enthusiastic and in the end nothing happens so that that's also in in also in the let's say first two years of of the the new fund as of 2020 20, that was the case.

22:41And now you've got, I mean, our continued focus on hearing out all those business managers. And I'm not talking board of management, not the layer below the board of management, but one layer deeper and onwards to understand what's happening, what's their micro strategy in a certain business unit, where do we want to go? and that's where we can actually sometimes just it all falls into place and you've got the right company to match a certain sub strategy because it's not i mean the bigger strategy of the company is clear i mean to grow in a certain direction i mean it's obvious that we cannot well maybe in the future but overall we cannot match uh to build up 50 million in revenues in year via one partnership, for example.

23:33Yeah, that's too much. So we want to build up a portfolio of many of those that go into the tens of millions of revenues. And if you have a broader base, then, I mean, you can keep on building and you have a certainty that you won't be cut off of all your revenues with just one partnership going into another direction. That's what we look for. We look for in the end. And so first we look at the match with KPN and the business unit. Is that the right one? At the same time, we are obviously looking whether this company is the best in its sort and in its space. So we really want to have the, let's say, top three, top five in a certain area where we can actually be proud of KPN offering this in a joint proposition to its customers.

24:20That's actually one of the best out there that you offer your customers, the KPN's customers, I mean. And that's where we want to be, because then you also have your backstop. And whenever the commercial partnership is not going into the right direction, you at least know or pretty much certain that you have done a good investment and that you will earn money on the financial return side. tell me i'm curious on this one how do you turn that sentence of this deal makes sense

24:56Andreas Munk Holm:on the internal intranet how do you turn that into metrics how do you measure it is it is the is there a revenue number that that's the the only thing that matters or or are there other numbers that you care about the preferred number to look at is revenues but sometimes i mean we try to if we do an investment we try to do an investment that will make the company close a commercial partnership within one one and a half years and that would be pretty fast in the meantime you can sort of start with a a resale so just a pretty simple resale just to see whether you and the business manager was right in his assumption that this will be an attractive proposition to customers.

25:42So you can start with the resale and then you would move, if there's enough traction, you would move to a joint proposition of some shape and form. So that would be the normal order of things. So that's the revenue part. But if we look at a business manager wanting to resell, I mean, that's already for us, that's a clear sign of a buying signal, obviously, that you were in in the right direction and in the right sector that that that business manager wants to be in in the ending bill we revenue i mean if you look at uh you mentioned it in in the pre-discussion 11 apps for example 11 have started as a more like i mean it's a customer satisfaction efficiency so towards customer service right to be able to serve your customers better there's no revenue customer revenue in there.