DigitalBridge Launches VC Unit, Outlines Full Stack Investment Strategy

Data centers reside at the intersection of real estate and technology. Historically, most of the largest investors have focused on the real estate side of that equation, building technical space to support the growth of customers who invest in new technology.

DigitalBridge is different. It pursues a converged approach to both development and investing, building a bridge between the companies building digital infrastructure and the investors seeking to invest in the digital economy.

One division of DigitalBridge builds and operates data centers, including Vantage Data Centers and DataBank. The other division is an investment management business offering a spectrum of approaches to investing risk, spread across data centers, fiber, wireless, towers and antennas.

That includes a new venture capital arm that invests in tech startups. This week DigitalBridge Ventures unveiled its first investment, a $60 million Series C funding round in Celona, an enterprise networking company seeking to bridge the gap between LTE/5G cellular wireless and enterprise IT infrastructure.

Venture capital (VC) investments have a very different risk profile than core real estate finance, seeking big gains in cutting-edge innovation, as opposed to predictable returns and capital protection. DigitalBridge CEO Marc Ganzi sees opportunities across all parts of digital infrastructure, matching investors with different sectors and risks to fit their profiles.

“DigitalBridge Ventures provides DigitalBridge with a new avenue to stay at the forefront of digital infrastructure by investing in exceptional, disruptive businesses,” said Ganzi. “This is a key component of our plan to enter new growth verticals in 2022 as a full-stack digital infrastructure investor and allows us to bring our capabilities and expertise to the software-defined network of the future.”

A Converged Approach to Digital Business

The DigitalBridge investment thesis encompasses everywhere data may travel, from the fiber in the ground to the wireless signals moving across the network to the devices, and just about every type of building along the way where data may be stored or processed. This is reflected in DigitalBridge’s expansive approach to digital real estate, which includes data center companies like Vantage and DataBank, but also telecom towers, small cells, fiber and edge computing.

In addition to its role as an operator and developer, DigitalBridge serves as a primary gateway for investors who want to put money to work in digital infrastructure, working with more than 200 private investors who manage pension funds, endowments and insurance companies. Through 2021, its funds have raised $18 billion to invest in digital infrastructure.

An overview of DigitalBridge’s business strategy from a recent earnings presentation. (Source: DigitalBridge)

“The goal is to establish DigitalBridge as a full stack digital infrastructure investment manager with the ability to invest and most importantly, operate and capitalize on a $400 billion annual global CapEx spend across our industry,” Ganzi said in a recent earnings call, where he laid out the new strategy. “We believe this positions us uniquely at the intersection of supply and demand with the capability to pair capital with the right opportunity to generate attractive, risk adjusted returns for our investors.”

The DigitalBridge expansion includes three strategies:

• Credit: Providing lenders access to the digital infrastructure sector, providing debt to finance everything from construction and operations to acquisitions. On Friday DigitalBridge Credit announced its first deal, partnering with an affiliate of the Canada Pension Plan Investment Board to arrange a $220 million term loan to support the continued growth of Everstream Solutions, an enterprise fiber specialist.
• Core: Longer term equity investments with predictable returns, where the growth profile of digital infrastructure may offer better performance than traditional core real estate investments.
• Venture: Investments in growth-stage companies targeting opportunities in digital infrastructure.

A Full Stack Digital Infrastructure Platform

“Full stack” is a phrase familiar from the IT sector, often describing a versatile developer who can build all elements of an application. DigitalBridge is applying the same concept to the world of digital infrastructure, which is a capital-intensive business that reaches from the smartphone to the cloud.

This approach allows DigitalBridge to leverage its portfolio of companies to provide investment options. Ganzi says the DigitalBridge’s approach to the industry offers it a “unique edge to source, vet and invest in late growth stage companies across the emerging digital infrastructure technology vertical,” and will allow investors to benefit from the company’s insights into where infrastructure is headed.

“Over the last two years, many of you heard me talk about the software defined layer of networks,” said Ganzi. “This is directly adjacent to the physical layer of digital infrastructure that we manage on a daily basis around the globe. It should come as no surprise that we should be investing in technology that supports this software-defined layer. This is the infrastructure of the future. And we’ll be talking about this for a very long time as we transform and change our previously narrow definition of network architecture.”

An overview of DigitalBridge ventures from the recent DigitalBridge earnings presentation. (Source: DigitalBridge)

DigitalBridge isn’t the first data center operator to invest in early-stage software companies. Digital Realty was an early investor in software-defined networking specialist Megaport, for example. But DigitalBridge has made VC investing a small but strategic component of its larger full-stack strategy. The initiative is led by Alexandre Villela, a seasoned venture capitalist who led a fund at Qualcomm Ventures that focused on investments in 5G wireless.

“Digital infrastructure is rapidly evolving to become software-defined, hyper-automated with extensive use of artificial intelligence and truly based on cloud-native technologies and consumption models,” said Villela. “At DigitalBridge Ventures, we want to partner with best-of-breed companies like Celona.”

Celona offers a private 5G solution that can help organizations easily integrate 5G cellular technology with their existing infrastructure. It uses CBRS (Citizens Broadband Radio Service), which frees up spectrum for low-latency networks. Celona uses network slicing technology, which enables customers to dedicate network resources to ensure latency and performance. Examples include a network designed to manage robots or autonomous vehicles. It also has potential applications for dedicated wireless networks for sports venues or office buildings.

“Celona has brought a solution to the private 5G market that we believe will have a transformative impact on the entire industry,” said Ganzi.

Ganzi says DigitalBridge is now working with several hundred private investors who manage pension funds, endowments and insurance companies. “They all say the same thing: we’re under allocated to digital infrastructure,” said Ganzi.

That aligns with a new CBRE survey of large institutional investors which found that 95 percent plan to increase their capital deployment in the global data center sector in 2022.

“Capital inflows are coming into us and they’re coming in at a record pace,” said Ganzi. “Our global reach our access to capital allows us to harvest those ideas, and then ultimately bring them back home to balance sheet, where we get to create those long-term predictable earnings that I think investors really appreciate about DigitalBridge.”