Thursday, October 04, 2001

Shy and Home-Loving meet Gregarious and Mobility-Loving

Set in the opulent yet modern designed residence of the Consul General of Sweden our Stardust Panel on "Wireless: What's Getting Funded and Why" was held on October 4th drew a great crowd of investors, analysts and other influencers in the wireless space. Hosted between the Consul General of Sweden and my company, Invest in Sweden Inc. and Elastic Agency also collaborated on the event.

The white gauze curtains fully covering the walls created an ethereal tent-like effect in the almost all-white dining room of the Swedish Consulate General's residence. The intricate wall moldings were just apparent behind the curtains and the room was lit from natural light, streaming in from Park Avenue, and the illuminated 150-year old family crystal chandelier with a modern twist of pussy willow branches woven between. The white leather chairs, with nail-head trim, were lined up for guests, neatly arranged on the black and white checkerboard tile floor with a Swedish Mountain Cow-Zebra type rug covering.

Up front, along the 64th Street side of the residence sat the panelists. After a very civil and cordial reception of refreshing water and fruit, the Consul General, Olle Wastberg, welcomed us to his home and made a few remarks. He posed whether life can return to normal in light of the times and yet reiterated the importance of conducting business as usual. He told us of the piles and piles of drawings from Swedish children sent to him to convey their thoughts to US children. He recognized there is a lot of talk about "doom and gloom" but the US economy is the strongest economy still and even an incident as momentous as this will not shake our foundations ultimately. There are still areas of development-the Internet was one and wireless is another. There are still VCs and there still will be. And so - with that it was "on with the show!"

The illustrious panelists that graced our presence the afternoon of October 4th were SiliconGo CEO Rich Burdon, MobileSpring president/CEO Mark Caron, Gartner Research senior analyst Tole Hart, Brainheart investment manager Sigrun Hjelmquist and VantagePoint Venture Partners partner Ken Kharbanda. Moderating this lively group was a lively contributor himself, Unstrung senior editor Josh Newman.

Josh provided us with his overview of the state of wireless funding in the US. We saw what was happening in Europe with wireless and thought the same will happen in the US. But we were wrong. There is a delay for a number of reasons. We'd already gone through the era where companies that made no sense like "" got a lot of funding, but wireless is different. This industry has a lot of good ideas but the market is not there yet. He feels that until 3G is available in the US, we'll have to be patient for wireless functionality that our European and Asian neighbors enjoy.

Each panelist then provided their perspective on the topic and fortunately and delightfully they all stayed on topic with thoughts on the question of the day! Their synopsized versions are online:
[here: Tole Hart:
The leading applications in wireless are similar to those on the web as well: email, calendaring, messenging. The areas where he's seeing successful development is in entertainment (jokes, games) some content (location-based or immediate-need like stock quotes); wireless video (packet video that's pushed); wireless LANs (like in airports). He cited Bluetooth, RedM, Digital Bridges and Netmotion as example firms. What's getting funded now are applications that put pieces together. Red-M use Bluetooth like a wireless LAN (for manufacturing applications like barcoding). Digital Bridges (acts as a broker between manufacturers and game companies and provides a platform that allows programmers to write games easily and carriers to add and remove them easily.) Netmotion allows you to keep connections up and logged on for WANs and LANs if you get cut off.

Rich Burton:
Their 18-month old company is a typical Silicon Alley startup: comprised of a Brit, a Russian, a Korean and two Frenchmen. He started off with all the positive aspects of having a startup right now: it's a good time for recruiting, you can work with sales people on a fee basis, there are more opportunities for alliances and people are more willing to collaborate, there is less noise to get noticed by customers and you can get office space without having to give options. Rich then went into a bit of background on application development (Apple, Palm. Blackberry) and cited knowledge management as a much needed area for businesses. Being able to find a file whether its in email, a file folder or on the web will be a challenge companies face that they feel prepared to handle. Their product of associative computing will help people dynamically navigate through their data, enable people to collaborate and share information.

Ken Kharbanda:
Ken provided a succinct background on VantagePoint's four funds. With $1.6 billion in their 4th fund and $2.5 billion total under management, their VP NYS Fund of $150 million was established with the NYS Teacher Retirement System and is focused on startups in New York State. VPVP focuses on businesses that have a reasonable capitalization rate in the optical, wireless, software, materials and semi-conductor spaces. The venture capital industry today is undergoing massive cross-currents. There is lots of uncertainty and the demand for great pricing is overriding. What used to be key-having a great management team as part of the package-is a dime a dozen today. All the great entrepreneurs have battle scars and lots of experience. Today you need more than just a good team; you need customers, a revenue model, all the elements of a real functioning business. He explained a bit about optical equipment, which is a dead area for now despite the fact that they'd invested in one of the leading technologies from one company. Part of the problem with optics is that there is such a long lead time in selling that it's hard to keep a startup afloat before their first sale. The question they're all grappling with is "how do you build a company that's worth a lot but won't make money for a long time?"

Wireless is a land mine but you don't know where the mines are or how far apart they're spaced. However, he does see this industry as an area for growth as well.

At this point, Ken switched gears and took off his VC hat, put on his techie hat, and wowed us with his deep understanding of the technology behind the industry. He spoke of GPRS, 802.11B, 802.11A and the other standards out there and the pros and cons of each one. In terms of what VPVP is funding in this space, they are generally staying away from applications, which they compare to the movie business where you make a lot of money if you have a best seller, but otherwise there's no money if not.

Sigrun Hjelmquist:
Having just landed from a flight in from Stockholm, and then also returning this night as well, Sigrun offered much insight into the investment point of view from a Swedish perspective. Started a year ago, Brainheart focuses entirely on the wireless space, but unlike many VC firms has a wide span of when it will invest. They can do seed, early stage, middle and late-stage investing whereas many firms only focus on one end of the spectrum with when they invest. They have 12 investments thus far.

Sweden has a history of being early adopters with technology. They always had phones and now the newest form of telephony-wireless is a natural extension for them. Her justification for a lot of technology firms success in Sweden is that they are primarily lead by engineers, which is a good thing. Many US companies are led by people with a business or legal background, which is fine for running a business, but often don't understand the technical capabilities of the firm. Echoing Ken's words, Sigrun mentioned that the success for wireless firms is not just based on the business-again-revenue speaks louder than anything. Everyone's more careful. Citing a survey done in the Tornado-Insider newsletter there have been 150 wireless deals done this year, one-third of which were done in Sweden and Finland and 75% were 2nd or later rounds. This led her to comment that is was harder for startups to get funding and that the companies need to be more mature.

And why are Swedes so good at technology? Well, perhaps it might be because they are "shy, home-loving, tech freaks" so their natural inclination is to "hide behind the Internet."

Mark Caron:
Mark provided us with a little background on their company, which is a middle-wear enabling software in wireless. As a co-founder of Omnipoint his experience in what customers want and what you can offer them based on realistic revenue models is established. They realized WAP wasn't going to be the saving application people thought it would be. With MobileSpring they focused on the text messaging area and are not planning 3G anytime soon. Their partner, Illuminet, is established in the SS7 signaling area and their business model as an inner carrier alerted them that the carriers, in general, need to work together more closely.

And then the exciting Q&A session began!

Questions, and answers, revolved around Bluetooth, which has a lot of problems and the various standards for wireless. Ken commented that wireless LANs have lots of neat problems that a VC could start a company to solve. He stated that the next generation of Bluetooth might work but VCs can't invest in something that could do something. They need to invest in things that will do something.

Then someone near the back posed the tricky question of "whose job is it to propose a solution" for furthering wireless development here in the States. Some answers were "system integrators" and "computer manufacturers you're comfortable dealing with."

And what are the hurdles to getting wireless development further along in the states? A debate ensued on the different experience between what "online" means to a consumer in Japan vs. a consumer in North America. One reason might be the PC penetration in the US being higher than in Asian countries. Another reason was that Europe and Japan always deployed text messaging with their wireless devices whereas the US hadn't. One person cited DoCoMo has had a better business model and that the infrastructure is a higher quality there vs. here. Sigrun noted that the drivers for use are different in Asia vs. Europe and the US. There they use wireless devices for Time-Spending (games, pets, etc) and here it is for Time-Saving (email, calendars, weather, stock quotes, directions, etc.) Differences in billing also came up. DoCoMo sends out a bill where you can check which new services you'd like on a regular basis whereas US bills are more plan-based.

The next hot topic for debate arose around the multi-modality capabilities of wireless. Josh commented that we are just now getting to a point where we're not speaking to a stupid computer. In the past, it was a common experience for consumers to have to speak ala Robot into a telephone to prompt desired answers. Technology that uses voice over data lines is a big area and the develoment in areas where you can speak into a voice browser and get data on the data browser (ie. Get a map displayed visually as opposed to having it read to you) is a technology that's getting attention. BeVocal, Tell Me, Speechworks and 724 are all companies that the panelists are watching. Ken and Tole both commented on this "neat" area and the advantages of voice over data lines.

Another audience member recalled the September 11th tragedy and the initiative as an effort to staff relief efforts. She commented on the failure of technology and this event as an impetus for the government and wireless industries to work together. Ken countered that he thought technology worked pretty well. People were using Blackberrys and most firms had disaster recovery and mirror sites. One person mentioned a carrier in Canada that offloaded public calls so emergency calls could get through.

A final question was about fixed wireless and LANs, like for an office or home situation. Ken brought up the "line of site" problem that is encountered with simple but natural obstacles like trees with leaves, rain and other obstacles that can reduce data rates. Thus, the need for higher frequencies that can deal with those issues are required.]

And then the clock struck 6:00 PM and our esteemed panelists were thanked for all their insight and expertise offered on the topic.

We were then encouraged by Olle to retire to the living room for a glass of wine and some tasty Swedish hors d'oeuvres. More fun ensued as guests began the delightful activity of networking in the recently redesigned room by four young female designers from the Stockholm's University College of Arts, Crafts and Design: Ms. Bodil Karlsson, Anna Kraitz, Asa Lagerstrom and Gunilla Lundberg. Each won a competition in different areas for design and the accordion-like wall-length covering.

Invest in Sweden Agency's Erik Enroth and Inger Savitt chatted with Carnegie Stockholm' VC Annika Lindmark. Silicon Alley Seed Investors' Ramana Jamala was there mingling with Technology Strategy CTO Hans Erik Karsten and Strategic Advisors' Mark Rudnitzky and Industrial Capital's Lee Mirman exchanged cards. Deutsche Bank Trust Company John Nolan, Nordberg Capital Peter Nordberg, Sandler Capital Management Richard Keller, and Anthem Venture Partners' Craig Danuloff were among investor-types present. Business Week's reporters Heather Green and Peter Ekstrom mingled and garnered more information from VPVP's Ken Kharbanda and MobileSpring's Mark Caron. Norwegian Trade Council's Antonio Raposo brought along some colleagues and introduced them around to other guests who came to the networking reception like The Eon Company's CEO Mitch Sonies and Melissa Grossman. Consect's Mark Frieser came out to meet and greet fellow Silicon Alleyites like Andrew Weinberg, Andrew Gelman, Nicole Berlin and Amy Fried. They all added a positive vibe to the already buzzing room. The silver-tongued James O'Connor of Mercury Interactive and I chatted with investment consultant Jan Mardh and Mille Capital's Lawrence Simon.

Olle and his charming wife, Ingrid were the perfect hosts, as usual, being to sure have greeted all the guests and make the rounds to see how everyone was doing. Olle spoke once more thanking the guests for coming, stressing the importance of trying to resume our lives as before September 11th, continue conducting business and all doing our part to keep an already world-strong economy strong.