Good News for Wireless Entrepreneurs
Good News for Wireless Entrepreneurs
By: Tim Bresien
Aug. 22, 2001 12:00 AM
Entrepreneurial interest in wireless was strong at this year's TiEcon conference in Santa Clara, CA. After all, there's more money under management at VC firms now than at any time in history. It's just not being handed out as freely to seed and first-round investments.
Falling stock valuations, bankruptcies, frigid IPO markets, restructurings, and layoffs by the thousands have overwhelmed our technology industries throughout the first half of 2001. As Guy Kawasaki of venture capital investment bank, Garage Technology Ventures, puts it, many companies have seemingly gone from "Gulfstream to Airstream" in record time. In the new world order of telecommunications, Chapter 11 conversations are the order of the day. Evidence of private and public market pessimism isn't hard to find. Just look on less-congested Silicon Valley freeways, at halted office construction, at pink-slip parties, on CNBC and CNN, and in ominous newspaper headlines.
Entrepreneurs may be aware that there's more money under management at venture capital firms now than at any time in history. But if they're in fund-raising mode, they're painfully aware that far less is being allocated to seed and first-round investments. Venture capital investment in U.S.-based companies continued its decline in the second quarter, according to recently released figures from VentureWire. Some 737 private companies raised $8.9 billion in venture funding. Compare this to the same period last year when a total of $27.9 billion was invested in 1,898 companies.
Readers of Wireless Business & Technology aren't seeking rosy projections to assuage concerns about the state of investment in the wireless sector, but who would dare propose that this could be the best time for new companies? Only someone with the ability to see through the tech malaise and - to use the popular Wall Street buzzword - who has a high degree of "visibility."
The organization, better known simply as TiE, was established in 1992 by a small group of Indian businessmen. It has grown to include over 5,000 members in 25 chapters worldwide, with another 15 chapters being formed. The nearly 500 charter members of the organization represent some of the most successful business leaders, technologists, and investors on the landscape today. Since 1992, TiE-affiliated individuals have created companies with a combined market value of more than $150 billion.
The group is dedicated to the advancement of entrepreneurship, particularly among those with ties to the Indus Valley region on the South Asian subcontinent - India, Pakistan, Nepal, Bangladesh, and Sri Lanka - but is open to all. Its success in helping to churn out successful start-ups in the U.S. is based in part on its charter to act as an open, inclusive, and transparent organization. "It's an economic, as opposed to a religious or political organization," says Kanwal Rekhi, a past TiE president. "We have transcended those issues."
Rick Bolander, general partner of Gabriel Ventures, one of the dozens of A-list VC firms that sponsor TiEcon each year, says, "These entrepreneurial leaders of TiE have invested in the next generation to not only guide financial success, but more important, to share a way of life. To not only dream, but to rigorously pursue one's dreams."
Among the more impressive tenets of TiE is its virtuous cycle of mentorship where those who have found success in technology are willing to share their intellectual capital as well as potentially serving individually as angel, or seed, investors. It's a mix of Silicon Valley economic culture and the Indian tradition of the Guru and the Shishya (the teacher and the disciple).
A panel session on wireless innovation, moderated by Raj Parekh, general partner of Redwood Venture Partners, and chairman and CTO of Comstellar Technologies, was held at 6:00 p.m. on a Friday night and it was packed - standing room only. Here I ran into more than one ex-Cisco veteran secretly shopping their ideas for mobile IP networking. The only person who wouldn't have been motivated by the entrepreneurial interest in wireless at the Santa Clara Convention Center would have been the fire marshal. The following is some of the insight I captured from TiEcon attendees.
Prakash Agarwal, president and CEO of NeoMagic Corporation (Nasdaq: NMGC), believes that games accessed from mobile devices will be among the primary demand creators for higher bandwidth wireless services in the near term. He also feels that we will see increased VC investment in areas that will "mobilize multimedia" while utilizing the current generations of wireless infrastructure.
Tae Nea Nahm is a general partner at Palo Alto, CA-based Storm Ventures and a director at voice-enabled wireless innovator Blue Wireless. He's most interested in seeing two types of companies develop. The first would be those that develop technology that "increases spectral efficiency at a much lower cost" in areas such as software-defined radio (SDR), smart antennas, and wireless ICs. The second would be "technologies that will provide the existing networks with an evolutionary (relatively low cost) approach for delivering new value-added services." He's quick to point out that he looks at many factors in management teams at new ventures, not the least of which is "a product strategy consistent with our vision of the wireless buildout."
Bob Williams, of Bay Partners, is a director at mobile enterprise app builder Thinque Systems and at distributed antenna vendor, Littlefeet. He's a firm believer that growth in wireless LAN space will continue, along with the attention paid to developments "at the intersection" of voice and data. "In the mobile space, today's data applications are closed systems," he says. "On a five-year horizon, the next generation open-development platform will be necessary if we're to see a profitable proliferation of carriers, applications, and service providers in a symbiotic fashion." He counts not only technical expertise and track records of success among his criteria for prospective management teams, but also communication skills and listening ability.
The consensus among conference goers was that many Internet and telecom businesses received funding in recent years in order to promote the development of certain technologies. In essence, many speculative investment groups were financing ideas that wouldn't necessarily transition to revenue-producing businesses - a financing model as opposed to a financial model. Venture capital funds, which used to be invested over four to five years, were allocated in less than two.
With more sources of funding available to a greater number of start-ups, industry sectors that might have seen a dozen or so new companies created, now have hundreds. But this doesn't seem to phase Kanwal Rekhi, who was quick to point out that the hard-drive industry had scores of entrants in its early days. He seems confident that the smart money will flow toward the superior management teams and superior technology, while a Darwinian market "mayhem" will take care of the rest. What we have today, he says, is simply a period in which "the underbrush is being cleared."
While Diamondhead Ventures general partner Raman Khanna would prefer "not to be the number 99" investor to jump into a particular market space, he echoes Rekhi by saying that he looks to invest in experienced management teams with superior technical talent. Both men seem unconcerned that billion-dollar venture funds have entered the scene in recent years, since they were raised primarily to fund diverse late-round portfolios, with the goal of being liquid within 18 months or soon after an IPO. The late-round fund managers simply don't have the resources to get as close to the grindstone as the early investors do. Khanna, a former CIO at Stanford University, would prefer to take the time to find the entrepreneur who is "impassioned about doing something fundamentally better."
Call it angel funding, seed money, zero-round financing, or even "friends and family" money. Some have even relied on Visa and MasterCard. In most cases the necessary capital that puts ideas into motion comes with more strings attached today, and it's sure to come more infrequently in the near term. The angel investors with only cash to offer, and without wireless intellectual capital to lend, have been retreating to safer havens.
Four to Watch
These four players come to the table with fully functional prototypes, near-complete management teams, and a clear understanding of what their potential customers need (and are willing to pay for today). All this before they've even closed major funding! Most important perhaps, they don't seem to be married to some fantastic vision of 3G in the near future. They're ready to speak to the needs of today's service provider and enterprise customer, leveraging the current generation of wireless infrastructure with clear plans to transition to future networks.
I suspect that MobileRAIN, Voxera, Simplylook, and GSNT will receive a great deal of interest from investors in their subsequent rounds of funding.
Its Twister product is a combination of wireless data gateway node and service intelligence node, and will offer services for providers that need access to Internet, enterprise data and voice networks, and wireline and mobile networks. Their Storm product is a service platform that enables service creation, customization, and personalization of forthcoming wireless services and solutions. Storm can also be used to host the company's suite of services; it will provide interfaces to the operational support systems and features to collect service usage and accounting information.
MobileRAIN already has plans for a European presence. Their pitch sounds more mature than many second-round companies that were ramped up in haste over the last 18 months to serve the perceived 3G markets.
Simplylook, Inc. (www.simplylook.com)
It features built-in adaptive compression, progressive delivery, and caching so that virtually any images will appear on a device in 5 seconds or less. Gadh brings tremendous academic credentials to the table, but also a sense of what service providers want. Simplylook is a company that has grown up within the university community without significant external funding, and already has customers in Japan and the U.K. (NEC and SKnow respectively). The company is based in San Jose, CA, and Madison, WI.
Their MobileImage V2.0 is now available for serving optimized images such as stock charts, e-mail attachments, photos, word documents, and database apps. This Java-based approach handles the popular formats of the day: JPEG, GIF, BMP, TIF, and PNG, which are embedded in HTML, WAP, PQA, and cHTML. Their business plan isn't about 20-minute streaming newscasts and wireless videoconferencing. At least not yet. It's about the types of applications that we'll all be using by this time next year.
Global Security Networks Technology (www.gsnt.com)
Thoughts on Successful Start-ups
"Transforming an idea into a company with a solid foundation requires not only passion but understanding of financing strategies, target marketing, recruiting, and developing valuable contacts," says TiE advocate Madan Avadhani, cofounder of VxTel, the Voice over Packet (VoP) semiconductor company that was recently acquired by Intel.
Raj Parekh of Redwood Venture Partners and Comstellar Technologies - who conducted the SRO panel session on wireless innovation that I mentioned earlier - has some specific thoughts on start-ups. He's quoted in a new book by Gurmeet Naroola called The Entrepreneurial Connection: East Meets West in Silicon Valley. (The author was at TiEcon, along with many of the industry leaders he profiled for the book; see www.indusbrainpower.com for more information).
Here are Parekh's thoughts on start-ups as they appear in the book:
"There are two types of start-ups. One focuses on technology and finds the appropriate place in the market. The second type of company does the exact reverse. They first locate the hole in the market, then identify the technology required to fill that hole.
"In general we see that the second type of company succeeds a lot more than the first. I'd say there's a 5:1 ratio. The trick is to find the hole in the market, quickly assemble the team, and identify the required technology. One must not get married to the technology but married to the hole in the marketplace."
With the launch windows for advanced wireless networks moving further away from the present day, there are plenty of holes to be filled.
Rekhi, the past TiE president, agrees that we're entering a period of more realistic expectations for fundamental growth. He started his first company, Excelan, in 1982 and was among the first Indian-born entrepreneurs to land Silicon Valley venture capital (Excelan went public and merged with Novell in 1989). Also a well-known angel investor and mentor, he says that "this is the best time to start a company."
Considering that Cisco Systems was founded during an almost identical economic period of uncertainty and a collapsed stock market, maybe it is.
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