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Milestone Group Quarterly: July 2009
Articles
- Face to Face: Brian Lent, Chairman & CEO, Medio Systems
- Investment Viewpoint: David Aslin, Venture Partner, Nexit Ventures
- By Invitation: Chetan Sharma, Founder & President, Chetan Sharma Consulting
- Milestone POV: Evolve or Commoditize - Telecoms in the Advent of Cloud Computing by Anselm Magel, Milestone Group
Investment Viewpoint:
David Aslin, Venture Partner, Nexit Ventures
Milestone: Tell us about Nexit Ventures. What's the current investment focus and philosophy and how does this show up for your portfolio companies?
Aslin: The philosophy today is pretty much as it was when Nexit started. The idea was born in 1999 by a couple of guys who had wireless industry experience; one in Helsinki, one in California - both Finnish. The idea was based on two things; one is we believe that the wireless industry has a huge amount more innovation to go; this is a multi-decade innovation period, so we could have a very focused fund only in the wireless industry. The second thing is, we better focus on the wireless industry because that is what we know. Let's invest in what we know and understand.
Fund I was raised on that basis in 2000 and was about $120 million dollars, and we just have completed raising Fund II in the hardest fundraising environment you could possibly imagine, and it's about the same size. Today there are four general partners - two in Helsinki, one in Stockholm, one in Silicon Valley and two venture partners. We're still focusing entirely on the wireless industry in its broadest definition, so not just cellular, not just short-range wireless, but wireless sensors, RFID, you name it. If it's got a radio in it or needs a radio to deliver a service, that's where we operate.
We wanted to leverage our cumulative expertise to offer entrepreneurs something unique - a VC firm that understands how to build a successful services business. After six years, we remain the only firm in the country devoted to this segment and it allows us to deliver unique value because of that focus. All our partners bring relevant expertise and have been entrepreneurs ourselves, so our portfolio companies benefit from our team and our extended network in this specialized area.
Milestone: Looking broadly at the technology market, what are the future events others should be thinking about, events that may lead to significant disruption in industries or markets?
Aslin: I think given the current time, we're going to see some people go away. We're going to see some people who really carve out a strong position. Two examples, one of the strong, HTC is just powering ahead and it's very impressive in the way they've built their company. The go away could be a Motorola - and we're seeing Nortel in the process of being broken up right now, so some of the big names are going to change. Normal industry rise and fall, I think, but there's going to be some substantial ones. Figuring out who's going, who's coming is quite important.
From a technology trend point of view, there are a number of things. I think femto cells are going to be disruptive when you’ve got good coverage in North America, which we don’t have today. When it’s coverage comparable to, or maybe even better than European and Asian coverage, then I think that brings new opportunity. The other area I am interested in is what does SaaS bring to this party? You can disrupt all sorts of parts of the cellular ecosystem in particular by thinking of SaaS for vertical markets, for delivery of parts of the infrastructure; there is a whole range of thinking that can go around there. SaaS is genuinely disruptive because it’s taking substantial costs out of some of the other areas of IT. Why wouldn't it take costs out of the wireless industry?
Milestone: What are the big unsolved problems in the mobile space today and where can entrepreneurs still build a billion dollar business in mobile?
Aslin: Battery life! I was a cynic on batteries for many, many years. I am a material scientist by education, so it's an area that I understand well. I think we might see some breakthroughs. There are some new chemistries around that have potential. So far all we have seen is 10-15% incremental innovation, but soon we might see some breakthrough performance there. Battery life is also all about more efficient semiconductors, but we're going to see that anyway from normal product evolution.
Another big unsolved problem is the sheer complexity of the wireless ecosystem, it’s getting solved, but it remains a problem. Many operating systems, many device formats, many device capabilities yet a desire to reproduce the Internet on this little battery powered handheld device. So two things there; one is write the application once and deploy it many times - that’s still a problem today. Second, wireless is limited by physics compared with the wired Internet and so we need smart ways of delivering very rich services to the device without overloading the physics limitations of the network. Those are opportunities where you can build a big company.
Milestone: What does the small mobile startup have to think about and start doing today to adjust their business strategies that may be three years down the road in a world where Google, Apple, Microsoft and others are going to be fierce competitors in the mobile space?
Aslin: I don’t think it’s any different than it has been, it’s just the names of the gorillas have changed. They’re all 800 pound gorillas, so it used to be Nortel, Motorola; Microsoft has been a factor for some time. You just go around the chart of the ecosystem and you’re going to find some massive companies, so it is the same thing as before. Be very nimble, find the spaces in between. Either keep out of the big guys’ way or build something that is absolutely indispensable. Same gorillas – different names!
Milestone: Globally, what operators do you think are out ahead of the game and what are they doing to differentiate and win in the market? What operator do you admire?
Aslin: It’s very difficult to generalize this one. I would say some have got our attention for some of the moves they’ve made. We were talking earlier about Swisscom. I think they have done some very interesting work with a variety of startups and they seem to have a good strong orientation towards innovation in their firm, so we like them. The move that we’ve seen at KT and DoCoMo made to build links in Silicon Valley to effectively outsource some of their R&D, which is a big step for those guys. So, with that kind of determination to bring innovation from all sources around the globe, I think they score highly.
Milestone: What do you make of all the mobile app stores, certainly Apple is leading with 65,000 apps on tap and there appear to be dozens of other app stores. How does this all pan out?
Aslin: It's very impressive what they've done; it has transformed the way we think about the device. There will be many followers and I think there will be a big shake out, but I don't think the shake out will leave Apple necessarily top of the heap - they will be amongst those at the top of the heap. There will be several providers for different circumstances. I think it's a hugely beneficial move for the industry as a whole and for the user to be able to get what they want on their phone when they want. It creates new problems - how do I figure out what apps are there? There's 65,000 for the iPhone that I have to sort through, how do I get the app I want at a price I am willing to pay? So there are new issues arising.
Milestone: What about your portfolio companies developing mobile apps for mobile stores? Some say developers can't make enough money in a month to buy a sandwich, so what advice are you giving to your portfolio companies and entrepreneurs who say that my strategy is to build an apps store?
Aslin: We don't have any companies in portfolio that are in the app store space. We tend to be picks and shovels guys anyway, so we would say, "If you have something that allows apps to be built more reasonably, let's have a conversation. If you're just building another app or suite of apps, then it's probably not for us, because we think that is a very difficult to sustain model."
There will be winners, big publishing houses, as there are in other areas of media. I don’t think the established big publishing houses will necessarily succeed in mobile, but they might. I think the idea that there will be some aggregation of capabilities is going to be there, but in general we steer our startups away from the apps store.
Milestone: To elaborate on that, say some startup comes in to you and says “We’re going to build this app for a mobile app store”. You look at him and you look at him and say it’s probably not a fundable business?
Aslin: Yes, it's most likely not fundable by a venture firm would be our view. But go ask your friends and family; you can make yourself a nice lifestyle business, if that's your goal.
Milestone: Is there a company that you personally, and not necessarily the company or the firm, passed on that made you think you wish you had that one to do over?
Aslin: Polish everything. Venture deals are getting done. Do not believe all the doom and gloom. Yeah, we just had a really, really slow quarter in venture, but it's not a zero quarter. There are still hundreds of millions of dollars being deployed in areas of interest to the wireless ecosystem. Deals are still getting done.
Another piece of advice would be to do your homework on the VCs that are expressing interest. Are they really doing deals or are they just kicking the tires? They are all saying they are doing deals, but have they done a deal recently? How many? How long was that in the pipeline? Figure those things out, so you can know whether you've got a likelihood with a VC you're speaking with and you can see whether they are going to cross the line or not.
Polish everything. That one extra sale, that one extra marquee partner, that one extra turn of the handle on the next rev of your product. Get it done before you need money so that you are in the best possible position.
Milestone: Is there a company that you personally, and not necessarily with Nexit Ventures, passed on that you wish you could do over?
Aslin: I tend not to have regrets. I don't really have one where I say, "Oh darn, I missed it!" There are one or two where we came close that proved to be reasonable and moderate returns. I don't think I have seen one where I have passed and it was a huge return.
Milestone:If you were an LP and had $20 million to put into any other venture fund than your own, what would it be and why?
Aslin: Marc Andreessen and Ben Horowitz’s new fund looks pretty interesting. Who would bet against those guys? I would certainly like to bet alongside them. There’s one example, but it’s a big fund for two guys, and there are some questions about how they are going to deploy it.
Milestone: As I understand that fund, it says some startups are getting taken out too soon. We're going to find other companies around that space and ride it out. Is that your understanding and do you think that's an interesting investment deal?
Aslin: That's my understanding. I think it's very much in line with the direction venture capital is going. We're going to have to be more patient. I don't know whether we are going to change from the 10 year fund structure, but we are all expecting liquidity to take much more time and patience is going to be necessary. Smart thinking of how do I accelerate time to liquidity, looking at maybe folding in other technologies, and on the other hand being patient in the time it takes to build a good solid company to exit.
In general, smaller scale funds that are focused are where I would sign a check if that was what I was going to do.
Milestone: Cheers David, great insights.
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David has more than 25 years of global IT and communications executive and venture creation experience. His business building expertise was developed as General Manager at HP and in small European technology companies; since 2000 he has applied it in Silicon Valley as a venture capitalist, startup coach and entrepreneur.
As a Venture Partner at Nexit Ventures, he works closely with his partners in California and Europe to identify, invest in and grow great global wireless companies. Nexit's exist successes include Bitfone, Mobile 365, Hybrid Graphics and Hantro. Recent investments include Brightkite, Funambol and Aava Mobile. Previously, David was a Partner at 3i in Menlo Park, where his wireless investments included Triage Wireless, Discera, Kineto Wireless and AOptix.
David holds an M.S. from Imperial College, London; CBA from Warwick Business School and MSIB from INSEAD, France.
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