Group Forms $300M Fund for Mobile Internet –

STOCKHOLM – Ericsson, the Swedish communications giant, AB Industrivarden, one of Sweden’s largest active stock ownership holding companies, Investor AB, a Swedish long-term active global shareholder, and investment bank Merrill Lynch & Co. Inc. have formed a $300 million venture capital fund targeting investment in the mobile Internet development space.

Each partner is committing $75 million to the fund, which will be named Ericsson Venture Partners.

Ericsson Venture Partners will invest primarily in mobile Internet ventures and technologies, focusing on Europe and North America. Investments will cover all aspects of mobile Internet technology, including network infrastructure, services and applications.

Ericsson’s president Kurt Hellstrom says expectations are that there will be more mobile Internet users than fixed Internet users by 2003 which will place great demand on network builders and service providers.

Although the announcement had to be made thanks to the listing requirements of each partner, the details of the new venture fund have not yet been formalized. It is intended that a team will initially be based in Stockholm and then open an office in New York.

“For now, until a managing director is appointed – a process that is underway – the owners will run Ericsson Venture Partners,” explained Clas Reuterskiold, chief executive officer of AB Industrivarden. “At the moment we are running Ericsson Venture Partners by a committee consisting of all of the investors. Ericsson Venture Partners will be in operation shortly.”

Once a managing director is appointed it is expected that the team, across Stockholm and New York, will build up a team of 15 to 20 personnel.

The investment approach will be flexible since as Reuterskiold points out the fund is a joint venture and as such will not be constrained by ties of external institutional investors. However, the aim of the joint venture is clear. “The prime aim for this venture is to earn a high return on its investments. One advantage of this joint venture organization is that it can capitalize, for example, on the technical expertise of Ericsson, while Industrivarden can offer exit expertise”, says Reuterskiold.

For Merrill Lynch this would appear to be an attractive side step as arguably the investment bank is conflicted out of running its own straight private equity operation by its private equity placement agent activities. Since 1995 Merrill Lynch has helped to raise globally over $50 billion in funds for private equity investors such as Charterhouse Development Capital, Cinven and Silver Lake Partners. With typical fees hanging at around 2% of the total amount raised for the fund that’s a $1 billion income that Merrill Lynch is unlikely to turn its back on lightly.

Merrill Lynch’s other private equity interests largely lie with its acquisition of Mercury Asset Management, which included Mercury Private Equity, announced in November 1997. Mercury Private Equity invests its parent company funds and on behalf of pension funds.