Telstra offloads venture capital interest in multimillion-dollar ‘fire sale’

Australia’s biggest telco has sold its interests in a venture capital fund at a steep discount, as it opts to invest in its network rather than tech start-ups.

Telstra CEO Vicki Brady.

Telstra has exited the venture capital business at fire sale prices as chief executive Vicki Brady races to cut $350m in costs by the end of the year.

Australia’s biggest telco had a majority stake in Telstra Ventures Fund II, which was launched in 2018, with participation from HarbourVest, and worth $675m according to Bloomberg.

Telstra had a 62.5 per cent share in the fund – worth about $422m. But it sold its interest in December for just $137m, its latest accounts reveal, underscoring the pressure facing telcos.

Telstra said it sold its stake in the fund – now known as Titanium Ventures – at a profit on book value – although it hasn’t disclosed what it valued its stake in the fund in its accounts.

“We have transferred $166m of cumulative gains held in fair value of equity instruments reserve to retain profits,” the telco said.

Confused? Like selling a house, it all depends on what the market believes your property is worth, and this may explain why Telstra called time on its foray into venture capital.

It founded Telstra Ventures 13 years ago and was considered a jewel in the telco’s crown under former chief executive Andy Penn, who said the fund was “a key part of our continued network and technology leadership”.

But while It’s had its hits, including 42 cashouts, which have returned almost $1bn to its investors, it’s had some big misses, namely being a notable backer of failed crypto exchange FTX, which was once valued at $32bn before it collapsed.

Under Ms Brady – who succeeded Mr Penn in late 2022 – Telstra has been focused more on investing in its own network – unveiling a $800m, four-year upgrade last month, and cutting costs – rather than betting on tech start-ups.

Ms Brady sacked 2800 staff – or 9 per cent of her workforce – last year. She is also racing to secure savings as part of Telstra’s much-hyped T-25 strategy, and last month said it was on track to strip $350m in fixed costs by the end of the year.

Telstra is now investing more in its network rather than venture capital.

Ms Brady’s goal is to “disrupt the status quo” via monetising its network so seize the artificial intelligence boom and not give away the opportunity to tech titans, which have already been poaching some of Telstra’s lucrative business clients as part of the “connectivity revolution”.

She said telcos failed to capitalise a decade ago on the shift from 3G to 4G, which heralded the streaming era and demand “for more sophisticated services”.

“The value didn’t go to us, because we didn’t change the commercial model,” Ms Brady said.

“This time, at Telstra, we are thinking about our network as a product with its own commercial value. It’s forcing us to think about how we productive it, price it, and go to market in new ways – all things we need to think about differently.

And thinking differently means quitting the venture capital industry, even at fire sale prices.

TPG has adopted a similar approach, offloading its NBN competitor Vision Network for $5.25bn last year to Macquarie and Aware Super-backed Vocus. The sale was about $1bn less than the initial deal they hope to strike in 2023 – which they halted, citing scale and complexity.

Titanium Ventures managing director Matthew Koertge with the former Telstra livery.

But TPG Inaki Berroeta said selling Vision would enable it to focus more on its core aim of taking on Telstra and Optus. Last month, he also criticised the high price of spectrum and the federal government’s plans to “tax everything that creates competition to the NBN”, saying it was driving up the price of internet and mobile plans for Australians, while limiting investment in the telco sector.

Titanium Ventures is steaming ahead under its new name. It has about $1.35bn funds under management and investments in 99 portfolio companies, and is also known for its frugality.

Titanium’s operating partner Gurpreet Ghuliani has previously revealed how he can fly business class at a fraction of the cost by simply planning ahead.

“If you’ve got any work just to do in Asia, or if you want to hop to Asia, you’re kind of paying a third of the price,” Mr Ghuliani said late last year.

“I’ll give you a great example. I’ve just come back from the US. If I went premium (economy), it was going to cost me about $4700 on that fare. But I went to Singapore, had two days work there, then made my way on ANA, which is a Japanese airline, business class for $4600. So business class Singapore to KL (Kuala Lumpur), from KL it was an hour stop in Tokyo, and then straight to San Francisco.”