Telefónica Launches New VC Focused on the Cybersecurity Sector

Telefónica recently announced the launch of Telefónica Tech Ventures, a Venture Capital (VC) firm that will focus on investments in the cybersecurity field. It is supported by Telefónica Innovation Ventures, the company’s Corporate Venture Capital, and ElevenPaths, Telefónica’s cybersecurity company. The new VC already has nine companies in its startup portfolio and plans to invest in six more over the next 3 years. Areas of investment interest for Telefónica Tech Ventures include System-on-Chip (SoC) automation, threat intelligent, new phishing, network security, data security, cloud security, IoT security, home security, cyber for Small and Medium Enterprises (SMEs), and identity management.

Telefónica has always been at the forefront of cybersecurity; both for cellular and beyond. The founding of ElevenPaths back in 2013 showed an understanding of the importance of cybersecurity in the digital transformation of businesses and, in particular, offering managed security services on par with those offered by the big tech leaders. Telefónica Tech Ventures is a step beyond, with a focus on entrenching the telco in future cybersecurity development. This is key, especially in a world where the Internet of Things (IoT) and 5G will have a significant impact on enterprises and become intrinsic to digitalization. Telefónica recognizes the value of being both a service provider and an investor in securing those technologies as they become ubiquitous.

The key is to offer a differentiated value proposition. First, Telefónica does this through alliances and partnerships, with vendors (Operational Technology (OT), IoT, Network Equipment Providers (NEPs)), through innovation labs (e.g., León OT Security Competence Center, Valencia IoT Sec & GRC Competence Center), and finally through investments and acquisitions. This latter part, which will fall under Telefónica Tech Ventures, includes companies like Nozomi Networks (OT, IoT), CounterCraft (security automation), Hdiv (SDLC), and Red Sift (Machine Learning (ML)). These competencies will also be key for Telefónica going into 5G, where cloud-centric and software-defined networks will be the new norm, and enterprise applications will branch out depending on use cases, from ultra-low latency to Massive Machine-Type Communications (mMTC).

Clearly, Telefónica is primed to take advantage of disruptive security technologies, both through its new VC and with ElevenPaths, bringing new developments in the areas of threat intelligence, cloud security, data protection, automation, and Artificial Intelligence (AI) to bear on its own networks.

Cybersecurity is a key requirement for modern businesses, but increasing digitization means many enterprises are out of their depth, especially when it comes to SMEs, but also in regional- and industry-specific markets. The IoT and 5G is an opportunity for telcos to exploit cybersecurity needs in new territory, expanding their capabilities beyond cellular, and anticipating the transformation that will be brought about by these technologies. Revenue generation opportunities lie in managed services markets, automation, ML, and IoT/OT. Investment in and the acquisition of talent are the fastest routes to obtaining competency, but strategic partnerships with vertical- or solution-specific vendors can also provide reach for those that lack VC-type resources.

In a 5G world, the vendor supply chain will expand exponentially, with software firms, hyperscalers, and cloud giants all keen to carve a slice of the pie for themselves. Cybersecurity, in particular, will be a dynamic market, with new demands in enterprise applications. Telcos are at the heart of 5G deployments, but they could easily be left behind if they do not step up in terms of value creation beyond just being an infrastructure provider. Cybersecurity is one of those markets where telcos can, and should, ensure they champion.

While a cybersecurity VC is a good strategy for Telefónica to ensure it stays relevant in that market, the key will be choosing those investments that align with the future of the telco, and specifically around 5G security for enterprise. There is significant potential for managed security services in 5G networks, particularly those that can be tailored to different 5G applications, from Enhanced Mobile Broadband (eMBB) to mMTC, as well as by network type (private or slice). Telefónica needs to look beyond IoT security, and into specific 5G deployment scenarios where it can leverage its upcoming 5G infrastructure and its newly acquired IoT/OT competency to add value with new enterprise security service offerings.