Come March 14 in San Francisco, executives from Qualcomm Inc.’s corporate venture investing arm will announce the winner of its 2012 QPrize.
The annual seed investment competition recognizes business plans submitted by entrepreneurs judged to have the best chance for success.
And what a success the prize has been.
In existence for just three years, the annual QPrize has generated lots of marketing buzz for Qualcomm’s flagship $500 million venture fund, and lured entrepreneurs nationally, as well as internationally.
This year, the final round for the top prize pits regional winners from Brazil, China, India, Israel, South Korea, North America, and Eastern and Western Europe against each other.
Each regional winner receives $100,000 in seed capital, while the grand prize winner receives an additional $150,000 in seed funding.
And that’s just the beginning of the potential deal flow for the young startups so honored.
Nagraj Kashyap, vice president for Qualcomm Ventures, says 90 percent of the winning entrants received some sort of follow-on funding.
The QPrize underscores the importance that Sorrento Valley-based Qualcomm puts on corporate investing in new companies with cutting-edge products and services, and which can give it a leg up in the fast-changing and competitive world of mobile technology.
A Model for Others
The Qualcomm program is one of the oldest, and most successful, among the nation’s largest public companies, a model for others to follow.
In addition to Qualcomm’s original $500 million venture capital fund, the mobile phone technology company has launched several other funds, including a $100 million fund in China; a €120 million fund in Europe; and most recently, a $100 million wireless health care fund.
Indeed, Qualcomm is among the Fortune 500 companies that have jumped in to fill the widening void as the VC industry has shrunk from 1,200 firms in 1999 to 540 in 2012.
James Mawson, editor and publisher at U.K.-based researcher Global Corporate Venturing, which tracks trends in corporate investment, notes that Qualcomm was a pioneer in the industry, which now boasts close to $750 billion in capital.
Kashyap thinks of Qualcomm Ventures as “early-stage R&D” for the company, a process that gives him and other executives access to the next big things happening in mobile communications.
The QPrize is not only a source of funds for eager entrepreneurs, but a great marketing tool.
The competition highlights Qualcomm in the global arena.
Kashyap says hundreds of business plans have been submitted to the QPrize competition since 2009, with the entrants coming from the four corners of the globe.
The QPrize competition helps the company uncover new business models that can accelerate the wireless market for chips and software, where Qualcomm is a dominant player.
Qualcomm concentrates on early-stage high-tech ventures, primarily in the wireless arena, though it’ll look at any interesting deal.
“We invest in a number of sectors, such as health care services and devices, clean-tech and energy, advertising and digital media, as well as consumer electronics,” Kashyap said.
Qualcomm’s investments average about $250,000, but the company has invested as much as $10 million in a single deal, and now has 80 investments in its portfolio.
He said 48 percent of the investments are in the U.S., while 52 percent are international.
He notes that 50 percent of the investments focus in software, mostly involving mobile telephones, 21 percent in semiconductors, 14 percent in infrastructure, 8 percent in health care, 5 percent in energy and 3 percent in consumer devices.
Two of the investments are San Diego companies, biotech focused Brain Corp. and wireless medical device maker Sotera Wireless Inc.
The investment leads “come from just about anywhere,” says Kashyap, including referrals from existing venture capital firms.
“We’ve worked with many VCs in the last 13 years, so we have very good relationships there,” Kashyap said, “and they are helpful in us setting up seed deals. When they see a company that has outstanding value, we get referrals.”
The Qualcomm team also attends many trade shows and related gatherings, such as the mHealth Summit held in December, or the huge Consumer Electronics Show (CES), held in early January in Las Vegas.
Qualcomm will participate in deals with VC firms, and over the past decade, it has established close relationships with the mainstream venture capital sector.
Besides seed deals, Qualcomm Ventures also will join in traditional investment rounds.
“We have no shortage of potential deals,” he said. “I think it is just a question of how we’re able to ferret out the best candidates.”
Though tens of billions of corporate dollars are now flowing into early-stage companies, Kashyap said he believes traditional venture capital won’t be muscled aside anytime soon.
“But it definitely supplements it,” he said.
“Corporate venture is as old as venture capital,” said Steve Tomlin, managing director at La Jolla-based VC firm Avalon Ventures, who said that corporations involved in venture investments “tend to come and go.”
“They amplify the peak and they amplify the trough,” he said, explaining that corporations tend to disappear when the investing climate isn’t that great and tend to appear when the climate, especially the potential for high returns, is very favorable.
“When times get tough, the first thing to go is the non-core businesses,” said Tomlin. “The senior executives say ‘We aren’t really venture capitalists, so why are we doing this?’ They tend to fall out when times are bad.”
“There are several corporate capitalists who don’t behave that way, and are in it for the good times, as well as the bad. Qualcomm is one of them,” he said. “Qualcomm has certainly been a very good citizen in the venture capital world, and they’ve shown real staying power.”
“It shows a certain amount of intestinal fortitude on the part of Qualcomm’s senior management,” Tomlin said. “Qualcomm has remained in venture investing because they have seen many up and downs over the past two decades. They’ve been buffered because they’re very IP driven and in a very high-margin business.”
Smart and Aggressive
“Qualcomm is really smart and aggressive,” said Neil Senturia, CEO of La Jolla-based boutique VC firm Blackbird Ventures.
“They know there is a dearth of capital here, and an excess of talented entrepreneurs here in San Diego.”
Senturia said corporate venture arms like Qualcomm “don’t necessarily expect a venture rate of return, but they want some connection with or synchronicity with their core products.”
“What they are saying is, if this is something that fits in my phone, and I am selling 50 million phones, then that’s really interesting,” said Senturia.
“Qualcomm is taking advantage of the situation in San Diego (and other locations) where there is a dearth of capital, and an excess of really smart people doing lots of great stuff. Just think, $250,000, $500,000, $1 million goes a long way, and they got a lot of million dollars.”