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Private Equity Manager: Anatomy Profile on Fidelity Ventures April 1, 2005 Fidelity Ventures gets help not so much from an 800-pound gorilla but from the group of people who make sure the 800-pound gorilla communicates well. To be sure, mutual fund monolith Fidelity Investments, based in Boston, is huge, with managed assets of roughly $1.1 trillion (€824 billion) across more than 300 funds,making it the largest mutual fund company in the world. Fidelity Ventures, with offices in Boston and London, is an independent entity, but it benefits from the heft of Fidelity Investments in a unique way – it receives valuable market intelligence about“pain points”associated with financial services information technology directly from the IT professionals at Fidelity who feel said pain. According to Rob Ketterson, the managing partner of Fidelity Ventures,Fidelity Investments hires roughly 6,000 IT professionals and spends between $2 billion and $2.5 billion per year on IT services. These services range from the most high-concept portfolio analysis systems down to the most levels of customer interaction.“You could say Fidelity Investments is a technology business,” says Ketterson. “It’s early to adopt things that provide better service or lower the cost of delivery.” Ketterson is quick to note that his firm is not a strategic investmentarm of the mutual fund company – the venture capital firm aims solely to make high returns for its own limited partners. But Fidelity Ventures’ limited partners include members of the Johnson family, which founded and retains a sizeable stake in Fidelity Investments (Ketterson is married to Elizabeth Johnson,daughter of Ned and sister of current Fidelity CEO Abigail Johnson), as well as senior executives within the mutual fund company’s IT staff. The history of Fidelity Venturesdates back to 1969, around the time the mutual fund company was launched.Founder Ned Johnson saw venture capital as a good business and used proceeds from his VC operation to support the growth of the more consumer-oriented mutual funds ,says Ketterson. Even in these early days, Fidelity Ventures gained insight into technology through the prism of the larger mutual fund operation.In the 1970s,the venture firm made an early investment in telecom services firm MCI amid a desire at Fidelity Investments to offer customers better telephone access. Today the relationship between Fidelity Ventures and the IT staff at Fidelity Investments has taken on a formal mode of cooperation.The venture firm has on staff a professional,Jill Roosevelt, whose job is to coordinate the communication between VC and IT. “As we speak,”says Ketterson,“some of our people are in an adjoining conference room gathered around a white board with the Fidelity security group,talking about holes in the system and what Microsoft has not done.” The venture firm meets weekly with key personnel from throughout the vast Fidelity IT division. In some cases, Ketterson says, comments from the IT staff lead Fidelity Ventures to seek out early stage companies in a particular sub-sector.In other cases,the IT staff is tapped as a valuable due diligence tool used to determine whether a particular company is worth an investment. Ketterson says investments from his firm do not come with the guarantee that Fidelity Investments will become a customer, although this often happens. A good example of this process is Fidelity Ventures’ recent and very successful investment in Airespace, a maker of local area network (LAN) equipment. Fidelity Ventures Fidelity Ventures led a $22 million round of financing in 2003, joining venture capital firms Battery,Norwest and Storm Ventures.Today the company is under agreement to be purchased by Cisco for $450 million. Ketterson says his firm was originally notinterested in the wireless LAN space, thinking it overdone in Silicon Valley. But in conversations with Fidelity IT people, the VC pros kept hearing about “rogue access points”– breaches in network security that allow outsiders to see information.“When a group of employees decide to set up a wireless LAN, they’ve just opened up the entire group to anyone driving down the road outside,”says Ketterson. The Fidelity IT team “knew they weren’t going to stamp out wireless LANs but they had to get control of it.” Fidelity Ventures brought in three competing vendors of wireless LAN security equipmentmakers to meet with mutual fund IT staff members, and Airespace emerged as the strongest candidate. After its investmentFidelity Venturesused its connections to persuade equipmentmaker Nortel to resell Airespace products.Ketterson estimates his investors will make a net IRR of more than 200 percent on the deal. Investment ideas have emanated from rather mundane areas of the mutual fund business. For example, Fidelity customers that complained about “going nuts pressing 4 then 7 then 9 and then having to dial in the ticker symbol” on the phone led Fidelity Ventures to an investment in Nuance, a voice recognition software maker that improves telephone-based customer interface. Fidelity Ventureshas an additional office in London, but Ketterson says his firm has global reach – it has made investments in Japan, India, Ireland and Israel,among other countries. The firm likes to invest in a company after it has a product ready to market. Typical initial investments range between $5 million and $10 million. The current Fidelity Ventures team has been together over the last four funds.Ketterson joined the firm in 1993,after working in the high technology practice of The Boston Consulting Group. Before that he cut his tech teeth atVLSI Technology in Silicon Valley,where Ketterson was a product manager. His recollections of those days reveal both Ketterson’s veteran status in technology and also the growth of the venture industry:“I worked for VLSI back when you could get up and down the 101 in less than three hours.” The firm’s leadership is rounded out by four additional partners.Dave Powers, who joined the firm in 2003 from Charles River Ventures, focuses on enterprise technologies.Simon Clark,a partner in the firm’s London office,covers Europe and Israel. He joined the firm in 1999 after having served as chief financial officer and general manager of the international operations of news site TheStreet.com.Clark helped found Reuters.com in 1995. Anne Mitchell,who joined the venture firm in 1996 after a stint as a technology equity analyst with Fidelity Investments, now focuses on enterprise technologies and communications. Partner and chief financial officer Andy Flaster joined the firm in 2000 after having served as vice president of finance for Boston buyout behemoth Thomas H. Lee Company. The firm’s operations are also supported by Kevin Kittredge,a business manager,and Julie Santosus, director of finance. Fidelity Venturesis notcontemplating opening up its next fund to any investors beyond its current core,which also includes a few select institutions. For his part, Ketterson doesn’t envy more traditional private equity firms that need to hit the fundraising trail. “There’s already a high demand among our existing group”for the follow on fund, Ketterson says.	Download Press Release

Private Equity Manager: Anatomy Profile on Fidelity Ventures

April 1, 2005

Fidelity Ventures gets help not so much from an 800-pound gorilla but from the group of people who make sure the 800-pound gorilla communicates well.

To be sure, mutual fund monolith Fidelity Investments, based in Boston, is huge, with managed assets of roughly $1.1 trillion (€824 billion) across more than 300 funds,making it the largest mutual fund company in the world.

Fidelity Ventures, with offices in Boston and London, is an independent entity, but it benefits from the heft of Fidelity Investments in a unique way – it receives valuable market intelligence about“pain points”associated with financial services information technology directly from the IT professionals at Fidelity who feel said pain.

According to Rob Ketterson, the managing partner of Fidelity Ventures,Fidelity Investments hires roughly 6,000 IT professionals and spends between $2 billion and $2.5 billion per year on IT services. These services range from the most high-concept portfolio analysis systems down to the most levels of customer interaction.“You could say Fidelity Investments is a technology business,” says Ketterson. “It’s early to adopt things that provide better service or lower the cost of delivery.”

Ketterson is quick to note that his firm is not a strategic investmentarm of the mutual fund company – the venture capital firm aims solely to make high returns for its own limited partners. But Fidelity Ventures’ limited partners include members of the Johnson family, which founded and retains a sizeable stake in Fidelity Investments (Ketterson is married to Elizabeth Johnson,daughter of Ned and sister of current Fidelity CEO Abigail Johnson), as well as senior executives within the mutual fund company’s IT staff.

The history of Fidelity Venturesdates back to 1969, around the time the mutual fund company was launched.Founder Ned Johnson saw venture capital as a good business and used proceeds from his VC operation to support the growth of the more consumer-oriented mutual funds ,says Ketterson.

Even in these early days, Fidelity Ventures gained insight into technology through the prism of the larger mutual fund operation.In the 1970s,the venture firm made an early investment in telecom services firm MCI amid a desire at Fidelity Investments to offer customers better telephone access.

Today the relationship between Fidelity Ventures and the IT staff at Fidelity Investments has taken on a formal mode of cooperation.The venture firm has on staff a professional,Jill Roosevelt, whose job is to coordinate the communication between VC and IT.

“As we speak,”says Ketterson,“some of our people are in an adjoining conference room gathered around a white board with the Fidelity security group,talking about holes in the system and what Microsoft has not done.”

The venture firm meets weekly with key personnel from throughout the vast Fidelity IT division. In some cases, Ketterson says, comments from the IT staff lead Fidelity Ventures to seek out early stage companies in a particular sub-sector.In other cases,the IT staff is tapped as a valuable due diligence tool used to determine whether a particular company is worth an investment.

Ketterson says investments from his firm do not come with the guarantee that Fidelity Investments will become a customer, although this often happens.

A good example of this process is Fidelity Ventures’ recent and very successful investment in Airespace, a maker of local area network (LAN) equipment. Fidelity Ventures Fidelity Ventures led a $22 million round of financing in 2003, joining venture capital firms Battery,Norwest and Storm Ventures.Today the company is under agreement to be purchased by Cisco for $450 million.

Ketterson says his firm was originally notinterested in the wireless LAN space, thinking it overdone in Silicon Valley. But in conversations with Fidelity IT people, the VC pros kept hearing about “rogue access points”– breaches in network security that allow outsiders to see information.“When a group of employees decide to set up a wireless LAN, they’ve just opened up the entire group to anyone driving down the road outside,”says Ketterson. The Fidelity IT team “knew they weren’t going to stamp out wireless LANs but they had to get control of it.”

Fidelity Ventures brought in three competing vendors of wireless LAN security equipmentmakers to meet with mutual fund IT staff members, and Airespace emerged as the strongest candidate. After its investmentFidelity Venturesused its connections to persuade equipmentmaker Nortel to resell Airespace products.Ketterson estimates his investors will make a net IRR of more than 200 percent on the deal.

Investment ideas have emanated from rather mundane areas of the mutual fund business. For example, Fidelity customers that complained about “going nuts pressing 4 then 7 then 9 and then having to dial in the ticker symbol” on the phone led Fidelity Ventures to an investment in Nuance, a voice recognition software maker that improves telephone-based customer interface.

Fidelity Ventureshas an additional office in London, but Ketterson says his firm has global reach – it has made investments in Japan, India, Ireland and Israel,among other countries.

The firm likes to invest in a company after it has a product ready to market. Typical initial investments range between $5 million and $10 million.

The current Fidelity Ventures team has been together over the last four funds.Ketterson joined the firm in 1993,after working in the high technology practice of The Boston Consulting Group. Before that he cut his tech teeth atVLSI Technology in Silicon Valley,where Ketterson was a product manager. His recollections of those days reveal both Ketterson’s veteran status in technology and also the growth of the venture industry:“I worked for VLSI back when you could get up and down the 101 in less than three hours.”

The firm’s leadership is rounded out by four additional partners.Dave Powers, who joined the firm in 2003 from Charles River Ventures, focuses on enterprise technologies.Simon Clark,a partner in the firm’s London office,covers Europe and Israel. He joined the firm in 1999 after having served as chief financial officer and general manager of the international operations of news site TheStreet.com.Clark helped found Reuters.com in 1995. Anne Mitchell,who joined the venture firm in 1996 after a stint as a technology equity analyst with Fidelity Investments, now focuses on enterprise technologies and communications. Partner and chief financial officer Andy Flaster joined the firm in 2000 after having served as vice president of finance for Boston buyout behemoth Thomas H. Lee Company.

The firm’s operations are also supported by Kevin Kittredge,a business manager,and Julie Santosus, director of finance.

Fidelity Venturesis notcontemplating opening up its next fund to any investors beyond its current core,which also includes a few select institutions. For his part, Ketterson doesn’t envy more traditional private equity firms that need to hit the fundraising trail. “There’s already a high demand among our existing group”for the follow on fund, Ketterson says.

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