Qualcomm Ventures Uses QPrize to Fill VC Void, Seed Wireless Startups Around the World
[Editors note: Revises and corrects the terms of QPrize convertible note funding]
When San Diego-based Qualcomm Ventures announced it was organizing a new international prize competition last May, the economy was already reeling and the venture capital industry had slammed on the brakes.
That slowdown in VC activity—especially for early stage startups—was probably the key factor in the company’s decision to set aside $550,000 in incentive funding for finalists in the “QPrize” competition, according to Nagraj Kashyap, who heads Qualcomm Ventures. With the Aug. 21 deadline for “QPrize” applications drawing near, Kashyap agreed to meet with me to discuss the business plan competition and the corporate venture arm, which usually maintains a relatively low profile here.
Since Qualcomm (NASDAQ: QCOM) launched the venture arm nine years ago, it has provided funding for about 30 startups around the world, with investments typically ranging from $500,000 to $10 million, and from Series A to Series C rounds. Kashyap says the fund’s managers look for startups that provide both a strong potential for return on investment and that complement Qualcomm’s existing products and services. Its investments include lithium battery developer A123 Systems of Watertown, MA, video game console maker Zeebo of San Diego, and remote blood pressure monitor startup Triage Wireless in San Diego.
Kashyap says Qualcomm Ventures’ foray into organizing a business plan competition “all started when we saw this precipitous drop in venture funding, which hurts the early stage guys disproportionately.” An additional source of seed-stage funding won’t change the prospects for some startups, such as semiconductor design companies, because the capital costs are so high these days. But Kashyap says seed funding can make a big difference to an application services company that is targeting mobile devices, for example—particularly for entrepreneurs in China and India.
Over the past year, Kashyap says, “The venture capital industry got really bad. What we saw was a dramatic decline in VC investments… What we didn’t want to see was a lack of investments in the wireless sector.”
The idea of creating a substantial prize for an international business plan was a natural extension of Qualcomm Ventures’ expansion into overseas markets. The wireless technology and chipmaker launched its corporate venture arm in 2000, as Kashyap puts it, “to invest in companies that are strategic to Qualcomm’s interests.”
While Qualcomm Ventures operates what Kashyap calls “a balance sheet fund” that draws investment capital as needed, it established a $100 million regional fund in China five or six years ago and a comparable European fund about three years ago. Qualcomm Ventures set up a $60 million fund in South Korea, and recently started investing in India and Israel.
As we reported in May, Qualcomm Ventures plans to select a semi-finalist from China, India, Europe, and North America. The four semi-finalists will each receive $100,000 that’s in the form of a convertible note (meaning the note gets converted to preferred shares of the start-up company at their next round of equity financing). Each semi-finalist also gets an invitation to compete for a $150,000 grand prize in November at Qualcomm Ventures annual CEO Summit. Qualcomm Ventures has plans to invite VCs, independent investors, and the CEOs of all of its portfolio companies to the San Diego event.
“So you get the cash and a jump start,” Kashyap says. “This event is pretty high-profile.”
As an added incentive, QualcommVentures decided last month to extend the deadline for QPrize submissions until Aug. 21 so the grand winner also can compete as a finalist in the GSMA’s Mobile Innovation Grand Prix. The contest is part of the wireless industry association’s “Globile Mobile Awards” announced each year at the GSMA Mobile World Congress in Barcelona, Spain. Qualcomm Ventures also agreed to provide its grand prize winner a free trip to Barcelona for the event.
“They want to promote the mobile ecosystem as well,” Kashyap says. “The QPrize isn’t going to solve everything,” he adds, “but it is going to be more of a factor in helping seed the industry.”