SUNNYVALE, Calif. – Frontier Communications, one of the nation’s largest long distance carriers, became one of the latest corporations to seize the burgeoning venture capital market for Internet investments when it formed Frontier Internet Ventures Inc. in late February.
While Frontier Communications, a subsidiary of Rochester, N.Y.-based Frontier Corp., has been quite active on the acquisition front in recent years, Frontier Internet Ventures is the company’s first foray into venture capital.
“[Frontier Internet Ventures] goes hand-in-hand with our corporate development program,” said Jonathan Heiliger, senior vice president of the venture unit. The company acquired six telecommunications companies in the past several years and in February 1998 bought GlobalCenter, a start-up data and Internet company that employed Mr. Heiliger. The corporation, however, will not pursue venture investments with the assumption that they are takeover candidates, he emphasized.
Frontier Fits into Trend
Frontier follows other corporations that have recently formed Internet-focused vehicles, such as computer manufacturer Oracle Corp. (VCJ, March, page 6) and cable television operator Comcast Corp. (VCJ, February, page 5). Mark Heesen, the director of legislative, regulatory and entrepreneurial affairs at the National Venture Capital Association in Washington, D.C., noted that corporations increasingly have become involved in venture capital because of the rising costs of doing in-house research and development. In many cases, it is more cost effective to form a venture unit and to invest in smaller companies that are developing new technologies.
However, Mr. Heeson added, the Internet industry has been unparalleled in its ability to attract corporations’ interest in launching independent venture units.
A $100M Investment Mandate
Setting its sights on Internet equipment manufacturers, application developers and service providers, Frontier Communications has allocated $30 million for the VC unit to invest over the next 18 months, and, depending on the success of the first few investments, as much as $100 million over the next four years. The formation of a venture capital vehicle was discussed for some time by Frontier Communication’s President and Chief Executive Joe Clayton and Executive Vice President and Chief Financial Officer Rolla Huff, when Mr. Heiliger, who had experience working for a start-up business, expressed an interest in managing a venture effort. A former chief technology officer of Frontier GlobalCenter, Mr. Heiliger was the vice president of engineering and operation of the ISP when it was financed by Softbank Technology Ventures prior to its sale to Frontier.
“I’m looking forward to learning a lot about the business side of building a company,” said Mr. Heiliger, whose expertise lies in technology. The new VC hopes that the experience will prepare him for another turn as an entrepreneur in the future.
Frontier Internet Ventures will invest $500,000 to $10 million in companies beyond seed- and early-stages of development and expects to start backing deals in the coming months. Mr. Heiliger said he likely will add a partner with a VC background and a junior-level financial analyst sometime after Frontier begins to make investments.