Daniel Waterhouse is a Sector Partner with 3i with a sector focus on internet/web2.0 and consumer technology investments. He joined 3i at the start of 2006 and is involved in investments and portfolio support on a global basis. Daniel has extensive knowledge of and network within the sector.
I met him in London in February and interviewed him for Nova 24, the supplement about technology of Il Sole 24 Ore, the main Italian economic newspaper.

Nicola Mattina. Before joining 3i, you were responsible for business development in Yahoo! and managed the acquisition of Kelkoo. I would like to start from here: why does a big company decides to acquire a smaller one instead of building the same services?
Daniel Waterhouse. There are many different reasons why an acquisition is performed, but basically you buy another company to achieve a strategic goal. Most of the times, it depends on the market: sometimes it is more convenient to do it in house, other times it is more convenient to buy someone that already produces what you need, other times it is better to do a partnership. Kelkoo is an interesting example: Yahoo! did not have a strong price comparison service in Europe like in the Usa and so we decided to buy the player with the biggest market share.

NM. You left Yahoo! at the beginning of 2006. Why did you chose 3i?
DW. That’s a good question: there is more than a reason. The main one is that 3i scales: it is one of the biggest private equity fund in the world and has a global business. Then, 3i invests in different development stages, from start-up to maturity and this makes the job more interesting and exciting. Finally, the portfolio is very heterogeneous

NM. What are your objectives in 3i?
DW. My role is to coordinate investments in the Internet area and to find occasions to create synergies between the companies in our portfolio.

NM. Do you have investments in the web 2.0 area in Italy?
DW. No, and I do not know many other investors that have investments in this area in Italy so I do not have to feel to guilty for that. In Italy we are focused on more traditional sectors, but we would like to speak toItalian web 2.0 companies: there is no real geographical limitation. Today you can build a global business in every country.

NM. You said 3i invests in every development stage. Which is your approach with start-ups?
DW. 3i invests mainly in the round A and B. We do occasionally seed investments, but not many. In the early stages we invest from 2 to 5 million dollars, while in the latest stages we invest from 20 to 40 million dollars. We are looking for business that has not been born yet especially in the web 2.0 space.

NM. In the last months there has been a certain interest in open source businesses with a good number of investments in this area. What do you think?
DW. It is a tough question and it is difficult to answer. We invested in a company named Visual Media that produces an open source software for special effects and video editing, but we are still refining the business model. I think that the challenge is to build a sustainable business model that can be applied to many companies, and my impression is that no one has been able to do it right now.

NM. Web 2.0 is happening mainly in the States. Tomorrow we will both attend a conference named Future of Web Apps and most of the speakers come from the Usa. What’s happening in Europe?
DW. I’ very optimistic. In the last eighteen months, there was an increasing number of important investments in Europe: Daily Motion, Skype, Netvibes are very successful businesses. The barriers to start a new venture are very low and this encourages entrepreneurs.

NM. Maintaining the focus on Europe, we have to notice that we do not have a European search engine. There are some initiatives in this area backed by the German and French government. Do you think it is an handicap?
DW. I do not think so. Search is by definition a global business, because the technology is the same even when the languages changes. I think there is room for niche search engines that addressspecific needs, but there is no need for a pan-European search engine.

NM. Google was the first search engine to use collective intelligence to produce better results. Which is the next step?
DW. There a lot of initiatives in this area, but maybe the most interesting experiments are in the area of social search. In this space, Yahoo! is achieving a leadership with Yahoo! Answers. We have invested in a company named Garlik: it is a service that allows the users to gather the information about themselves that are present on the Internet and uses a very sophisticated semantic engine to do this. Another area of great interest is visualization and there are many companies that are trying to create non textual search engines.

Questa intervista è disponibile anche in italiano nel blog di Nova 24: Intervista con Daniel Waterhouse.

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