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New Simon VC arm making bets on retail technology

August 9, 2014

Simon Property Group might seem the furthest thing from a technology company. It owns vast shopping malls, many operating today much as they did when they opened decades ago.

But while executives of the Indianapolis-based developer remain bullish on their malls and outlet centers, they also see the landscape shifting, with technology changing how retailers operate and how consumers shop.

To help shape the future of retailing, Simon is ramping up a new venture capital arm, Simon Venture Group, that’s betting millions of dollars on nascent technology companies.

“We believe we have only scratched the surface on applying technology to the retail environment in innovative, interesting ways,” Simon Chief Marketing Officer Mikael Thygesen said in a prepared statement this spring.

fernandes-skyler-mug Fernandes

Simon formalized the effort in March, hiring experienced venture capitalist J. Skyler Fernandes to serve as SVG's managing director. Working out of Simon’s New York City office, Fernandes, 29, expects to make seven to 10 investments a year, with bets as small as $250,000 on seed-stage firms and as much as $5 million or more on later-stage companies. Ultimately, he figures to deploy tens of millions of dollars.

While Simon is seeking the outsized returns earned by other venture capital funds, “the ultimate mandate for Simon Venture Group is to improve the shopping experience,” Fernandes said.

“Beyond that, it’s really being able to take a leadership role in the evolution of the retail space. Given Simon’s large presence of malls, we are a very valuable strategic investor for up-and-coming technologies and brands.”

SVG inherited investments that Simon made in two firms last year—Palo Alto, California-based Deliv, which uses crowdsourcing to provide same-day delivery from mall tenants; and Columbus, Ohio-based Jifiti, whose app allows users to send gifts to friends’ emails or Facebook pages. Recipients select the size and color before opting to redeem the gift in store or online.

Since Fernandes came aboard, SVG has invested in two firms, El Segundo, California-based Fuhu Inc. and New York-based Augmate. Fuhu makes the Nabi, the leading children’s tablet computer. The company has ambitious expansion plans that include selling the tablets through mall kiosks and generating subscription revenue from cloud-based content.

Augmate makes cloud-based applications for digital eyewear and wearbables within and outside retailing. In a mall, for instance, a sales clerk using the eyewear might scan a shirt and instantly see on her display whether the product was available in the storage room in the customer’s size. Information also could feed into the display prompting the clerk to suggest complementary merchandise, such as a tie that would appear stylish with a shirt the customer was buying.

“Think business apps for Google Glass,” Fernandes explained on Twitter in June when he announced the investment in Augmate.

With all of SVG’s portfolio companies, the firm is investing alongside heavyweight players. Among the backers of Augmate, for instance, are affiliates of Siemens and United Parcel Service.

As is typical in VC investing, “there are going to be winners and there are going to be losers,” Fernandes said. “But the main thing is to support up-and-coming technologies. There will be future PayPals, future Amazons and future retailers creating in-store locations. We are going to be part of that evolution.”

In a conference call with analysts last month, Simon CEO David Simon said SVG and Fernandes, so far the only employee, are off to a good start.

“We’ve got some expertise now. We’re looking around corners for opportunities. Skyler’s uncovering a lot. We’re in the deal flow,” Simon said.

“We’re doing it smartly, though. We don’t have 100 people running around doing it … I like the prospects of what we are trying to accomplish.”

Eli Lilly perseveres

Patent expirations have bedeviled the entire drug industry in recent years, depressing revenue and spawning an increase in merger activity.

Eli Lilly and Co. knows the pain all too well. Generics have gobbled up much of the revenue once generated by the antipsychotic Zyprexa, the antidepressant Cymbalta and the osteoporosis drug Evista.

But CEO John Lechleiter, whose firm is racing to roll out new drugs to pick up the sales slack, isn’t sounding like a defeatist.

In an interview on CNBC late last month, Lechleiter said Lilly had not been approached by Pfizer, which recently tried to buy AstraZeneca, and did not “intend to be anyone’s target.”•

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