Oliver Schmäschke, T.Capital: 3 Principles to Prevent CVC Failure

0:00Andreas Munk Holm:Welcome back to the podcast, everyone. Today, I'm excited to chat with Oliver Schmäschke from T-Capital, the strategic investment arm of Deutsche Telekom, managing over 2.3 billion euro in assets to back the next generation of transformative tech companies. Jeppe, I'm thankful that you've connected me to Oliver because he's quite the capacity. Oliver brings, of course, deep expertise in corporate venturing, helping innovative startups in areas like enterprise software and beyond scale faster through strategic capital, market access and powerful partnerships from one of the world's leading telecom giants.

0:31Andreas Munk Holm:Today, we'll uncover Oliver's three core principles for building a CBC that lasts more than the infamous 3.7 years that the average CBC lasts.

0:44this show is not investment advice and the hosts of this episode may be invested in the funds and

0:48Andreas Munk Holm:companies featured oliver welcome to the podcast awesome andreas thanks for having me all right yeah but could you just tell everyone why you thought we should bring oliver on for the podcast for sure it's not that often you come across guys or persons in general that are not talking about how great they are, but when you open the discussion with them and talk and get your own points across, they listen and they have the same opinion. So I think, you know, Oliver and I, we're very opinionated about corporate venturing and how you use this as a strategic tool. And that is not often that I have those conversations.

1:31So meeting Oliver in Hamburg is fantastic and I'm really looking forward to these next good 30 to 40 minutes with Oliver sharing everything about his view on corporate venturing. Thank you. You see me blushing.

1:47Andreas Munk Holm:Oliver, I think there's no other way to do this than ask you to share your story because it is quite one. And of course, T Capital is not just T Capital, but a little more than that. Where do I start? I mean, let's start with myself. I grew up basically in the volleyball gym, playing all day. Then at some point, decided to become a material scientist for whatever reason, decided that's not a good idea, joined Boynton Consulting Group as a consultant, and then became the first employee at what is today T-Capital and DTCP. T-Capital today is a 2.3 billion investment arm of Deutsche Telekom with a very clear, and we'll get into that in a second, with a very clear strategic mandate to propagate innovation, business, everything good for Deutsche Telekom and doing that in a very, I'd say, we try to do it in the best way possible for cooperation.

2:38And I'm sure we'll discuss that there are certain elements on how to do it right or better and make the journey to work with a corporation easy for young companies.

2:47Andreas Munk Holm:Oliver, we are going to dive into your core three principles for building a CVC that lasts. Could you share in more detail how you've ended up to look the way you are today? Because it's it's quite a journey you've been on with T-Capital. So unveiled as much as you're willing to. So the core part here is that you need to be very, very clear on what you're doing and why you're doing that. So from the get-go, it was always clear there's a distinction between investing for strategic reasons and investing for financial reasons. This then leads you to making different processes, different targets, different investment strategies that fit into that ultimate goal.

3:32So that's something we implemented at T-Capital very well, shedding the ambition to be the best financial investor out there. There's plenty of very big names there. But just become the best strategic investor out there. That's difficult enough, and it's a place that is needed in the world. Does the world need another great financial investor? Yes, for everyone, that's great if they do that. But that's not necessarily the role that we see for cooperation. The objective of the corporation is to be the best telecommunications and AI and technology company out there. And how can we as the investment arm of Deutsche Telekom support that goal through smart investments into great companies that do great business together with Deutsche Telekom?

4:13If we turn a 10 million investment to 20 million or 30 million, that's great. But Deutsche Telekom, I mean, it's over 100 billion of value that's going around there. So it doesn't really move the needle. But if we bring a lot of innovation into the organization, innovate the products with the heart of our investment, then we can really move something. I think one of the things that we normally, when we talk about corporate venturing and this average lifetime of 3.7 years, right, is the risk of being closed down. I used to use this phrase by Ilya Strebolev out of Stanford that when you have survived three CEOs, you know you have a successful corporate venture entity.

4:51But a little bit back to what you're saying, to, you know, it's a strategic tool, right? But what KPIs are you then monitored on, right? If it's not financial performance? Yeah, I mean, so first of all, financial performance is important. No one is in the game of losing money. And it's very good if you can go to the CFO and tell them, look, whatever we're doing, we're not costing you any money. In fact, we're bringing more money back than you give to us. That's always a hygiene criterion. But then beyond that, it's obviously very important that the innovation leads or the business owners at Deutsche Telekom have a benefit from what we're doing.

5:25So whenever we do an investment, we do it alongside a business owner. He brings the rationale. We're working together with him to figure out how can this investment help you in doing business with this company through joint go-to-market, through using their products, whatever the constellation might be. And that's then also what you measure. How much did I help the business owner? And this can be from satisfaction and how smart he got up until very hard KPIs like, did I meet my revenues that I was planning to do together with these companies? How many people are using this? Do I have the right customer satisfaction score in my application?

6:00Whatever it might be, depending on the investment. Have you at Deutsche Telekom installed any kind of reward system for these business unit owners to work with you, right? Because normally in corporate life, you have like 25 KPIs a year you need to adhere to. but how do you make these collaborations successful from a corporate angle? No, we don't. So the motivation to work with us for the business owners comes indirectly. So first of all, the budget comes from headquarter. So it's basically a free ride to draw on this investment capital. Two is we know the people for a long time, so they know that we are working together and together we create good things.

6:40And three, this is, I mean, everyone wants to do new business and everyone likes engaging with young companies. So it's a very grateful topic to be around when you have four of your five days filled with meeting your quarter end numbers or thinking about the last restructuring, how do I make efficiencies? Have some time with us looking into new companies, into young companies, new topics, new initiatives. That's typically something the business owners appreciate.

7:08Andreas Munk Holm:Now, let me go to my big topic too. So to say, I know that there's few that have been as successful in building out a strategic venture unit as you have. So I'd love to understand from your three core principles for building a CVC that lasts. You need to be crystal clear on what you want to achieve. Either you're strategic or you're financial. Most of the models I've seen failing after the famous 3.7 years or earlier is somewhere where it's like, yeah, we're somehow both. which typically means you're neither of the two. And for a corporation, I think the better choice is not to be the better financial investor because you'll be in competition with the very big financial players out there who can pay better, attract better talent, have more degrees of freedom.

7:57But you have a playing field that is obviously for a corporation. You can be the best strategic investor out there. You can be very easy to deal with. You can bring more value to the company than a typical VC can do. And that's really once you're clear on that mission, then you can derive the next steps. Which the second point then is that you have the right playing field selected. You need to be able to work with the right company subset that is relevant to you. So where do you find the companies or the funds that really share the mission of whatever your company or your corporation stands for?

8:30For example, it means the companies need to be mature enough. Deutsche Telekom is a very, very large organization. So better up work with companies that already have 5 million plus of revenues, series B upwards, which just makes it easier to digest this very big organization with its processes. It's very important that you're not the biggest fish on the cap table as a corporation because, well, then the company is over-relying on you. Also, if you commercially, if you're more than 50 % of their revenue, that's typically not a healthy situation for a company. So that really narrows down the world of where you want to play.

9:08And then last but not least, the companies you work with, they have to like you, right? No one is waiting for you. So you need to invest into the relationship and really show both your business as well as to the company of how to create value together. And if people don't like that and are only after your money because they don't get it elsewhere, it's not a good place to start. So rather, I go to very good companies who don't actually need our money. But basically, we can then use the investment to facilitate great partnership among the two. And then three, obviously, your structure and your governance needs to follow that.

9:40So if you're financial, well, there's carried interest. There is very independent decision making. There's incentives for the teams. It's all tailored towards making as much profit as possible, which is great. But if you're a strategic investor, well, you need to have a different governance. There's a corporation that needs to be involved in the right way. You need to set the incentive so that it is in line with making strategic impact. And if you do that right and draw the right conclusions from that, then I think you're good in the race to become older than 3.7 years. Because then you will also survive a CEO change or a senior management change within our organization.

10:19So, Oliver, you have been in the industry for so long, right? So you have also seen some of the cycles that are there, right? So when I listen to the three pillars that you have there, where have it been most difficult for you to get it right? We were very lucky because Dutch Telecom draws from a lot of experience. They have been investing in venture capital since 1997. So they were also one of the first to do this. All we did in 2015 or 2013 to 2015 when we thought about the structure is to look at what worked well and what needed to be changed. And I think this clarity of strategic versus financial is something you need to get right.

11:03And where it then becomes tricky, and Deutsche Telekom is in a very privileged position there because it is a very strong brand. It is a very large organization. So how do you get the right talent? You need to get that right. You need to attract people. And if you're a small corporation somewhere outside of a big city, it's not that easy to attract the right kind of talent. We're sitting in Hamburg and in Berlin and in London and in Frankfurt. We have Deutsche Telekom with T-Mobile has a great brand also, not only in Germany, but also in the US and globally. So that makes it already easier for us.

11:36But still, it's very difficult to attract that talent and also then to retain that talent. Because obviously, and I've done my team as well, there's people who are very, very talented. And then some of the bigger VC firms are coming along and can pay a lot of money to approach them. So you really need to find those people who have that investor gene, but also love working with the corporation. If they only have the money, great for them. Then they go on to a financial VC at some point because they can earn carried interest. That's great. That's awesome. I'm all for it. But if you find those people who love working with the organization, love creating value, sitting in the board with the company and not only telling them, oh, you need to meet your quarter end numbers.

12:17No, here's how I can help you in meeting those numbers. His heart can help make an introduction. His heart can help make business with Deutsche Telekom. That's where you find the right people and get the talent right. Yeah, and it's such a special breed, I would say. Having worked both in venture capital and in corporate venture capital, finding the mix of the two is kind of like finding a hidden gem, right? So what have you done and do you do something special with your team? because in venture capital, you're basically just left by yourself. Either you make it or not, you need to find the next unicorn, or you're left out there.

12:55Do you have any special tricks that you can share? I think what worked well for us is to grow our talent. Especially on the venture team, we have a very young team, a very talented team, and you can really build them up and build them up relatively quickly because they get to do more or they carry more responsibility as compared to being in a VC firm, for example, relatively quickly. And you can really have them grow into what they're doing, have them adapt their playbook of how they attract a deal or get access to a deal. And you can really grow it into that. So that for us was more effective than lateral hires.

13:34Andreas Munk Holm:Oftentimes, I have seen CVCs hire out of the VC crowd, or at least try to. Have you ever done that? When you've seen it done, what are you kind of, how do you diligence that they would fit into a corporate? Can you talk a bit about that? Is it a complete no-no? Or are there ways that you can ensure that you can do it? Because it is a very natural thing to do. You can only speak broad average, right? There will always be individual cases where it differs. But the general perspective that I have there, I rather take someone who's younger or come from somewhere else who aspires or basically sees this as a step up.

14:14This is great. I get to do investments in a corporate setting. That's awesome. I want that. As opposed to someone who's on VC and maybe is doing okay. But if he would be on a rocket ship to partner level with a lot of carry and a great fund performance coming his way, why should he go anywhere else? Right? So naturally, the people who then I could hire from VC into CVC are, in many cases, the people who have not worked out perfectly. This can be that they were just in the wrong setting and in CVC they will flourish. Yes, that's what I said. You'd have to look at the individual case. But I don't want CVC or my team to be someone where I take up the people who failed in VC and now need something to spend the next 10 years on.

15:01That's not what we're aspiring here. We have a team of highly motivated young people. If you look to our website, look at them. It's an awesome team, right? They're all on their way up. So everyone that we want to hire, for them, this should be way up. Let me ask you a thing on one of your questions or one of your statements,

15:21Andreas Munk Holm:because you said for a corporation, the focus often needs to be strategic because there will always be financial investors out there that aren't bound by the same things as you are as a corporate. Can you talk a bit to the competitive edge that a corporate does have? Because I know what you mean, but it could sound like you think that a financial investor will be better necessarily and will win out, but they will not. They might have better returns purely, but that doesn't mean that they will be a better investor for a startup as an example. Yes. I think the edge boils down to two things. One is access and two is value creation.

16:05And it obviously connects very tightly. If you go to a company, to a very good company, I mean investors are lining up. They have 50 million they want to raise but they have demand for 100. So who do I give that capital to? Of course I will select my dearest financial big ticket investor who leads the rounds that say hefty valuation. But then I will think about, okay, who else do I want to have on the boat? And then if you are an easy to deal with corporation that comes along with a relatively small ticket, but with a lot of promising value creation potential, then the access into that round and look at some of the logos we have recently invested from Lovable, N8N, 11 Labs, Black Forest Labs, so very, very strong logos.

16:49They take our money because we help them do more business. And that's the second part of it. You need to live up to your promises. It's not enough to just say, we're Deutsche Telekom. There's so much business. Come on, let me in. But you have to constantly over the years show that you're actually living up to what you're saying. It doesn't mean that everything that you plan works out. But they need to understand, hey, we're doing everything to provide business to you. And here are the success stories. Well, here are some elements that didn't work out. That's perfectly fine. But speak to the other CEOs.

17:17If they speak good about us, then we have made our job right. And through that, you are a value accretive investor that everyone wants to have on the boat, which then develops into the nice position that if the big financial investors have an asset that they really like, that they want to bring on some strategics, you're one of the first they call. So that's what I always tell my team is we need to be the first ones that Andreessen, Sequoia, whoever calls. If they think about, hey, this should be somewhere around telco, tech, Europe, who do I call? okay, let's call to capital and ask if this is for them.

17:50The general assumption from the venture capitalists in the ecosystem is that do not take money from the corporate venturing people, right? Because they have all kinds of governance issues. They only stay on for 3.7 years and so forth. And you say you want to be the first ones that the sequoias of the world call, right? How have you gone about this and are you fighting this in the ecosystem or how do you see it? So we're not fighting. I mean, we're the friendly guys. So, I mean, if someone doesn't want us, then it's not for us. There's no point in fighting. It's the point in showing that when we come on board, it makes sense for everyone.

18:28So this means, as I said, you need to be easy to deal with. No one wants to have a complicated corporation that is slow and makes weird demands, doesn't understand the game. So you just need to make sure that you are as market standard as possible and as quick as allows. And that's something where you just need to manage your own processes, structures, stakeholders. We've done that very well. As a corporate venture capitalist, it's also you try to find this value creation that you give to the portfolio companies. Is that something that you map out as you go through and prepare your investment proposal to your ISE?

19:05How do you work with this? And do you have like a 100-day plan following your initial investment where you go through this? It depends on the case, obviously. I mean, there's investments that are very explorative in nature, where you want to learn something for the organization. Up until that you have a very concrete value creation plan with revenue targets. The important part for us is every investment that we're doing has a business owner from within Deutsche Telekom. So we always have the person who is responsible then also to deliver that partnership. He's part of the investment process. He comes with us to the investment committee and explains why this is strategically relevant for Deutsche Telekom, why this makes sense for Deutsche Telekom, how these investments help him achieve his commercial objectives better than without an investment.

19:51And that has proven to be very, very effective. And then also to instill that discipline in the organization because that business owner might be there for two years and then he gets promoted and someone else takes over, that you make sure that not only the person but also the role within the organization. This is one of their tasks. And if the person leaves, then the successor needs to pick that up. And you have to prevent not invented here syndrome. Again, this is part of also the collective organizational memory, which is for us easy because we're doing it for a long time. But if you're starting a CVC pretty new, it's good to write such things down and commit everyone on a script or a rule set for you as an organization how you want to carry this out.

20:37in order to be able to make a typical venture life cycle of 7, 10, 12 years and not the typical CEO tenure of roughly around 3.7 years as well. And is it something that you basically track with your portfolio companies to evaluate where do you need to spend your time, where can you do a difference in value creation? Is that something you do on a regular basis or what is your view on this yes so every company has uh we have a small team that's all whose only job is to look after the business relationship between deutsche telecom and the portfolio companies and then they obviously do whatever is needed if this is a high intensity here's monthly real fixes here's hand holding he is really doing that if the business runs basically by itself okay here's a biannual check-in just to to count the money that we've we've been making and everything in between.

21:32We have a pretty sizable portfolio, so you also need to steer the resources where they make the most benefit. It's important to help the companies and the organization because you're still marrying the corporate world, a very big corporation with a very young company, which if you've seen it 10, 20 times, it helps if you take people by the hand. It's like, this is okay. Let's do it like that. Yes, they need that. I know it's a pain, but it's worth it. Or also saying them, look, it's not worth it. That's also the job. If you're like the company, You also have to tell them sometimes, okay, let's park that for a year.

22:05You're not ready yet or the organization is not ready yet. Let's revisit in time. Because at the end, the most limited resource that we all have is time. And I think that ties really nicely into what you said a while ago, right? That, you know, you need a little bit more mature companies to work with the big corporates to make it successful, right? And it is okay to do an investment, you know, before they're actually ready, right? Because you can see the promise in it.

22:29Andreas Munk Holm:Oliver, I would love to ask you about the second one, which is that you must have the right playing field selected and it must match the corporate you invest for. I think we've spoken on this podcast, on the corporate podcast, a lot about how you as a CVC, meaning the venture investors do this and kind of the rule book for the people that are running the CVC. If we flip this question to the people that are in the corporate, so to say, and are devising what this CVC should look like in the beginning, what would you say that the mothership should be looking internally for to know that we are ready for this?

23:12Andreas Munk Holm:We can do this because, yes, it's right that you as a CVC leader need to pick the stage that's right and you design it around that. You design your strategy so that you get the right ownership amounts compared to the value add that you bring and the competitiveness of the market and all these things. but as a corporate to be able to set this up, what are the things that you must be able to look yourself in the eye and say, yes, this, this and that we completely live up to? Yes, absolutely. I would start with the team. What's the kind of team that you have available or want to bring on board? If you have a seasoned vice president of M &A who now does ventures, He needs different support that if you have a young associate from a venture firm that you now give an opportunity to build up a CVC.