"Wireless Investment Tips" - 7 February, 2005 - Interview by Russell Buckley - Editor Mobile-weblog.com
WirelessMatch have just launched their online mobile and wireless accelerator programme in the UK, designed to match investors with entrepreneurs seeking to raise £50,000 - £1.5m. I took the opportunity to interview their managing director, Steven Dotsch, about his views on raising funds in the mobile and wireless markets.
As an expert in early stage wireless ventures, what areas do you think are more likely to attract funding at the moment?
Generally, there are no hard and fast rules about what gets funded. A lot depends on the quality of the business plan, the size of the market you are going for, the management team executing the plans, and the general ‘appetite’ to fund early stage companies.
More specifically, I believe very much in the mobile entertainment sector and everything that goes with it, from downloading ring tones from chart-topping pop artists, playing branded mobile video games, getting up to date sports and financial news, to being able to download and watch TV programmes on mobile devices.
Also there is a lot of basic content in the market place today, so new innovative ways of utilising and reusing that content will be attractive to operators and aggregators alike, and therefore, in theory, attractive to potential investors. This applies to both creating and distributing the content as well as the core technology enabling this, combined with innovative mobile payment systems.
Other areas to consider are Voice Over Internet Protocol and Location Based Services, in particular solutions that can combine better/cost efficient accuracy with exciting services and reasons to use LBS.
The last few years have been difficult ones for true start ups i.e. with no real progress to show against the business plan. Do you see that changing or are the days of a “man with a plan” likely return anytime soon?
We are talking about a very difficult period over the past few years, an almost necessary response to the irrational optimism that pervaded the market in the late 90s, up to 2001.
Now the market has returned to a much more normal situation where plans and entrepreneurs are taken at face value and they are not judged against the state of the market.
Having said that, I believe there is a huge pool of capital available that needs to be placed in the market. I see that the appetite for larger and later-stage deals is significantly increasing amongst wireless and telecoms VCs, and they are increasingly competing for the market there. Time will tell whether some of this pool of money will trickle down to the earlier stage wireless market. I doubt it, somehow. That’s why we believe that WirelessMatch will become the main funding channel for early stage wireless companies requiring smaller amounts in the UK.
What’s your biggest “golden rule” for entrepreneurs approaching investors?
Unfortunately, I do not have one particular ‘golden rule’ rather a number of ‘tips’.
Entrepreneurs should think big and act like leaders. They should know their weaknesses and how they will compensate for these. They should know their market, know what they are going to do in it, know where their revenue is going to come from, know how they are going to achieve it and make sure the opportunity is of a significant enough size to be able to generate large returns . . . soon.
They should be able to listen and accept feedback, in particular from those knowledgeable investors whom have been around the block more than once. They shouldn’t overdo R&D, rather, they should get out of the bunker early and show some initial traction with prospective customers. They should focus on cash conservation and generate profits within a pre-agreed time line. They should be conservative in their initial valuation, forecasts and returns. They should under-promise in the first instance and surprise the initial investors prior to their next round of funding in order to secure a higher valuation.
And your biggest “don’t ever even think about doing this”….
Recently, I met this aspiring ‘wireless entrepreneur’ looking for an unquantifiable amount of funding who shouted at me during the first 30 seconds of our meeting:
“according to this famous research company there are at least one billion prospective users desperate for my stuff. Yeah, right NOW. We just need to spec, develop and get it out there. Actually, I can easily double that number of users in no time, in particular if we use some of your millions for global marketing. Believe me, I am the man who can do it. I personally guarantee you that each of our users will listen to two mobile phones by the end of the year, at the same time, and use our stuff in sync.”
So, if you come badly prepared and present badly, don’t be surprised if you’re shown the door pretty quickly! If you, as an entrepreneur, are not the kind of person who can argue persuasively, get others involved who can. Investors will use any excuse they can find not to invest in you and your venture.
Tell us about one start up you’ve helped that really excites you at the moment.
If I may, let me mention two companies . . .
I am indirectly involved in a company called Vibrant Media, a UK company launched in 2000, and funded by a dozen or so business angels and a Dutch bank. They have developed a technology called contextual advertising that matches internet advertising with relevant content, so that the reader of the text can very likely be identified as someone who is interested in the products you are advertising.
This solved one of the major problems for advertisers who just couldn’t get to grips with the size and the diversity of the internet. Whereas online publishers secured an additional revenue stream from their content. This is a win/win situation for all parties concerned. This company was placed second in this year’s Sunday Times fastest growing technology companies and it has continued to grow extremely rapidly, especially in the USA.
I am also quite excited about ORBO Technologies, an Irish pre-revenue wireless security company. ORBO originally raised some business angel funding and more recently completed their first institutional round. Just imagine the potential harm for you or your employer when you loose your mobile or laptop with all your and/or your employer’s confidential information on it. I believe ORBO has quite impressive technology and they are gaining increasing momentum from several prospective multinational customers. One to watch!
And one start up that excites you and isn’t in your portfolio.
Unfortunately, I missed out on both Espotting, as well as MonsterMob.
One of the areas we cover in the blog is Location Based Services, which haven’t really reached the potential that everyone thought a few years ago. Why do you think this is and what does the future hold for LBS?
I very much believe in LBS. Unfortunately, the market has been slow to take off, but that has as much to do with the reluctance of operators to engage in it and invest in the network infrastructure required to provide a reasonable, expected level of accuracy. In addition to this, there seems reluctance to properly reward companies developing the technology and the content.
I believe the market needs both the combination of accurate positioning (circa 50m is enough) and exciting services that stimulate the user. The delay in the rollout of 3G has of course also not helped. I admire a company called Mobile Commerce who I believe are a market leader in this space in the UK. They started in 2000 and have continued to plug away at the market which was always around the corner but somehow never within reach.
However, if you have ever used a ‘Find my nearest’ on your mobile, you have almost certainly experienced their business. As I’ve said, LBS will get much more sophisticated as technology advances and Mobile Commerce are well placed to take advantage. We will see wider use of location based services driven by better positioning technologies and sexier services.
What do you think about Blogging – are there any business models that make sense?
I am afraid I haven’t seen any specific business models for blogging. I am happy to look at one, though. I believe there is an opportunity for online marketing firms to use blogging as part of their online marketing mix on behalf of their clients.
Perhaps blogging is at the same stage were online affiliate marketing was, some 5 to 7 years ago, when nobody in e-tailing believed that this would work. Now it’s big and getting bigger and even the end consumer can benefit from it, see for instance MyCashback.com
Make three wireless predictions for the next three years.
1. Enjoyment of TV, or TV type content on the go;
2. Mobile / Fixed replacement will continue to grow with new solutions including VOIP to drive down end user costs, and
3. By end of 2007, retailers will dedicate as much shelf space to mobile content products as they do to PC games/content.
Is there anything I haven’t covered that you like to talk about?
I would like to elaborate a bit on the prospects of VoIP. Unlike the IP telephony hype of the dotcom era, consumers are now using VoIP, and it is just as reliable as conventional landline and cell phone services. Now that new wireless technologies, like WiFi, are converging with VoIP, it's only a matter of time until smaller companies are able to offer mobile VoIP using WiFi, and later WiMax. I believe, the emergence of mobile VoIP promises to become a disruptive force in the traditional telecommunications market.
"Wireless Investment Tips" - 7 February, 2005 - Interview by Russell Buckley - Editor