Engines of Innovation
By David James, Mon Sep 29 09:45:00 GMT 2003

A new breed of venture-backed entrepreneurs is building the future of mobility. "College-aged entrepreneurs with a five-minute idea have mostly disappeared," says George Petracek, managing director of Atrium Capital, a venture capital firm in Palo Alto, California.

Recent signs of life in the venture capital world bring to mind the ancient myth of the Phoenix, the huge bird that immolates itself on an alter of fire and later arises from the ashes in magnificent plumage, a symbol of immortality and life after death. Can the dotcom boom that went bust - shattering the dreams and fortunes of so many - have a second life?

"We've seen increasing investment activity over the last three quarters, and we think the recent up tick will continue," says Martin Gagen, CEO of 3i US and Asia Pacific, a member of the London-based venture capital firm, 3i Group plc. In the United States, moneys raised and invested by venture capital firms in the second quarter of 2003 rose for the first time since 2001. Significantly, VC investments in early stage companies - where innovation thrives - jumped 43 percent from the previous quarter.

Venture capital activity provides unique insight into where a given industry is going and how it will get there. In the wireless segment, venture capitalists are now emphasizing practical, revenue-producing innovations led by seasoned entrepreneurs.

Services and Systems

An example of a startup focused on revenue-producing innovations is WiderThan.com, a Korean company that develops services and solutions for wireless Internet markets. One of its services is "ColorRing," which enables subscribers to select or create a music piece (a pop song, a film music theme, or an entertainer's voice) or a short message that the caller will hear, instead of a ring signal, until the subscriber picks up. Specific music pieces or messages can also be designated for specific callers. "ColorRing is a huge revenue generator for operators," says Jonathan Kim, WiderThan.com's vice president for global marketing.

"Mobile services are important investment targets now that the wireless infrastructure is stronger," says Kwan Yoon, vice president Korea, Nokia Venture Partners, in Menlo Park, California, whose firm is a later stage investor in WiderThan.com. "Operators are looking for ways to monetize their investments."

Another wireless startup with traction is Pronto Networks of Pleasanton, California. Pronto's operations support system offers an integrated solution enabling WiFi network operators to deploy and manage large public hotspot networks. "Pronto provides a best-of-breed turnkey solution for hotspot operators, producing some of the most promising growth we've seen in the industry," says Ravi Belani, an analyst at Draper Fisher Jurvetson, a venture capital firm in Redwood City, California, and an early investor in Pronto Networks.

On the mobile systems side, many startups are trying to develop key solutions for wireless data switching, much like Cisco did for Internet switching, says Jay Eum, managing director of Samsung Ventures North America, San Jose, California. "The Holy Grail is to find a startup that will be the Cisco equivalent for mobile data, disrupting the incumbent 'voice-centric' telecom equipment vendors' oligopoly," Eum says.

Gagen also sees significant startup activity on the systems side. "Most of the new innovation we're seeing is coming from infrastructure rather than applications, bringing wireless in line with the seamlessness of the global Internet, with roaming across multiple carriers and multiple bearer technologies," he says.

Older and Wiser

A pickup in venture capital investments does not mean that legions of new entrepreneurs will soon be funded. "VCs now are more cautious in evaluating startup management and hiring managers," says Yoon. "College-aged entrepreneurs with a five-minute idea have mostly disappeared," adds George Petracek, managing director of Atrium Capital, a venture capital firm in Palo Alto, California. Eum agrees: "The dotcom bust demoralized the get-rich-quick entrepreneurs, which is a good thing for everyone."

Venture capitalists are now betting on a new breed of entrepreneur. "We now have the luxury of seeing entrepreneurs - serial entrepreneurs who know how to get ideas to market - coming back for a shot at a second or third success," notes Gagen. "We look for entrepreneurs with a proven track record. We also seek out teams with the two attributes that we believe define exceptional companies - technology innovation expertise and strong financial management."

Pronto Networks is a case in point. Jasbir Singh, Pronto's CEO, was running a successful software development firm until the dotcom bust caught up with them in 2001. He and his team closed that firm and formed Pronto in early 2001. After they developed their new WiFi operations support system and obtained a few customers, they went after venture capital funding. "VCs now look for solid solutions with a huge market potential," says Singh. "The difference from three years ago is that the funding cycle is longer. It's now six months rather than three. Before they fund you, VCs want you to come back - and come back again - each time showing some progress."

The Phoenix is said to live for many years after arising from its ashes. If the new entrepreneurs are birds of the same feather, we have much to look forward to.