Cisco looks east for LP opportunities

In venture capital circles, Cisco Systems is best known as an acquirer of portfolio companies, consistently providing VCs some of the most profitable exits in the industry. This year’s standout acquisition—the $830 million purchase of network security provider IronPort Systems—was no exception.

But Cisco is also an active player behind the scenes as a limited partner and venture investor. Over the last decade, the networking company has committed more than $1 billion to venture activities globally. And it is showing no sign of slowing down.

In the past year, Cisco has invested directly in more than 30 startups in such areas as wireless networking, broadband content delivery and network security. The company is also a limited partner in funds managed by Artiman Ventures, Benchmark Capital, GKM Ventures, Kleiner Perkins, SAIF Partners, Sequoia Capital Partners and VPSA, according to CapitalIQ

Hilton Romanski, a director of corporate business development at Cisco, specializes in global ventures and acquisitions. For a notoriously acquisitive industry leader with a $150 billion market capitalization, this translates into a busy job. Today, Romanski says, Cisco is focusing its LP investments overseas. While the company has no litmus test for selecting venture partners, Romanski tells VCJ there are a certain qualities the company seeks out.

Q: How would you describe Cisco’s strategy in choosing limited partner investments?

A: We usually look for funds in markets that we believe are compelling where we have limited experience. Typically we start by learning about the business culture. Then we identify a best-in-class local investor we can work with, a venture capital or private equity fund that also puts their own capital to work in technology-oriented companies.

That’s effectively what happened in Israel. About 10 years ago, we invested as an LP in local funds, including ones run by Sequoia and Benchmark Capital. Today we’re also investors in the Softbank Asia Infrastructure Fund.

[As an LP] we usually look for funds in markets that we believe are compelling where we have limited experience.”

Hilton Romanski, Director of Corporate Business Development, Cisco

Q: Are there places where you plan to ramp up LP investment?

A: China and India are incredibly important markets for us, but also the Middle East, Africa, Russia and Eastern Europe, and Latin America are high-growth regions for Cisco. These are markets where IT is being implemented and adopted at a rapid pace and where new business models are being revolutionized.

Q: That’s a lot of territory. Are there regions that you see as particularly prime for investment today?

A: Central and Eastern Europe have a high level of priority from a venture perspective. We’ve made great progress in those regions and are in the progress of finalizing some potential opportunities. [Cisco has plans to invest about $130 million in the region, as a limited partner and potentially a direct investor.]

Q: How about direct investments and acquisitions?

A: From a geographic perspective, we’re seeing more opportunities offshore on the investment side. Cisco has done a number of deals in Israel, and we have a strong presence in Southeast Asia. The last 18 months have been particularly busy relative to global markets, where a lot of our growth is being driven today.

But in general, we like to target markets where Cisco has a strong R&D effort in place. We have a number of strong R&D centers in the United States, and these are the areas where we tend to get more comfortable with acquisitions.

Central and Eastern Europe have a high level of priority from a venture perspective. We’ve made great progress in those regions and are in the progress of finalizing some potential opportunities.”

Hilton Romanski, Director of Corporate Business Development, Cisco

Q: Cisco’s been an active acquirer of VC-backed companies this year. Besides IronPort, there was Reactivity, the XML developer, NeoPath Networks, a storage management company, and two social network startups, Utah Street Networks and Five Across. Is there an underlying strategy venture funds should be following?

A: If you think about the history of Cisco, it was a one-product company originally and then actually acquired into the switching space overnight. We’re very comfortable culturally with the idea of using investments to learn about new markets and to explore new markets, and with using acquisitions to bolster our R&D.

As we’ve moved into voice, security and wireless, those transitions have all been tied to some core of merger and acquisition activity. The recent moves Cisco has been making to expand into areas like digital media are part of the heritage of the place—using the balance sheet to explore new technologies. Video is also obviously a priority for the company overall, and our acquisition of Scientific Atlanta last year was a big part of that effort.

Q: How about on the venture side? Do you have strategic interests in all your venture investments?

A: The way I would characterize it is Cisco is a strategic investor first, but it is also a financial investor. Direct investments tend to have a strong tie relative to the strategic element. Our limited partnership positions, however, often afford us with a bit of flexibility, since the funds themselves have the ability to look at sectors and spaces that aren’t necessarily central to Cisco.

Sometimes the non-strategic investments work out very well. A classic example was Shanda, a Korean gaming company that was part of the Softbank portfolio and had a very successful IPO. It’s something that was a little bit out of the scope of where Cisco would’ve made a direct investment, but we’re able to enjoy the financial benefit.

Q: What about acquiring companies in which you’ve made venture investments? Do funds that have Cisco as an LP get their hopes up about having you acquire their portfolio companies?

A: This is something I talk to venture partners about all the time. They should keep in mind that there are ways to work with Cisco not just to look for an acquirer, but also as an investor. Still, I’d say the best way to learn about Cisco as an exit partner is as an investment partner.

HILTON ROMANSKI

Director of corporate business development

Cisco Systems

AGE: 34

EDUCATION: MBA, Stanford Business School; BA, Columbia University.

WORK HISTORY: Joined Cisco in 2000 and previously helped lead the security technology effort within corporate business development. Prior to Cisco, Romanski was an investment banker in JP Morgan’s telecom, media and technology group.

FOCUS: Leads the Global Ventures & Acquisitions team within Cisco’s corporate business development division, directing acquisition and private equity investment strategies outside of the United States. Also manages the U.S.-based wireless business development team.

DID YOU KNOW? Romanski’s no stranger to circling the globe. After graduation from Stanford Business School in 2000, he took off for Turkey and India, where he met the Dalai Lama.

Source: VCJ reporting