2010 could be "vintage" year for VC

The wireless industry has always had a tight relationship with venture capital firms that have in many cases funded the initial development and expansion of numerous start-ups. This has typically been a very beneficial relationship for both sides as consumer demand for mobile services has driven strong adoption, and revenues, for many players in the space.
One VC firm that has seen some of that return is Sevin Rosen Funds, which currently has a stake in a number of mobile-focused operations, and according to the company, is always on the lookout for more.
The firm started in the early 80s targeting the burgeoning personal computer space and was one of the initial investors in companies such as Compaq Computer Corp., Lotus Development Corp. and Electronic Arts. More recently the company has found investment opportunities in the mobile space and just recently completed investing the contents of its 9th fund that targeted 32 companies. Companies that have benefited from Sevin Rosen’s investment plans include Wayport, Ethertronics. Extenet and Airwalk.
“We have a history of investing in wireless and we think that is an area that will continue to provide opportunity,” said Jackie Kimzey, general partner at Sevin Rosen. “We look for the right kind of management, people that have been successful and know the domain.”
Sevin Rosen is currently in the process of raising funds for its 10th fund and hopes to stock it with $300 million in proceeds.
Sevin Rosen’s strategy for finding hidden gems in the mobile space is to target those companies that have found a niche that has yet to be tapped or found significant competition.
“When there are a dozen competitors in one area they require more money,” Kimzey explained. “We look for those that do not need more money to garner attention.” Kimzey added that Sevin Rosen’s philosophy has led it to steer clear of the current rush of mobile applications that have been spurred by application stores.
Kimzey noted that Wayport was a prime example of Sevin Rosen’s plans as the company was one of the first to target the public Wi-Fi market in the late 1990s.
“You always have to be thinking about what the future might hold,” Kimzey said. “Wayport was one such company in that it got in on the ground floor of the public Wi-Fi space before the service became common place.”
Wayport was acquired by AT&T Inc. in late 2008 for $275 million.
Kimzey says Sevin Rosen sees similar possibilities for companies developing technology designed to help wireless carriers enhance their network coverage, speed and efficiency.
“Networks need investments,” Kimzey said, adding that they are always looking for companies that can use proprietary software or hardware solutions to make networks more efficient.
Foot in the door
Kimzey noted that Sevin Rosen’s interest in early funding of companies provides it with an opportunity to help them tailor their business plans for the market, or in some cases put that business plan together.
“We like companies when they are in the idea stage,” Kimzey said. “We look at how much money they need to reduce some risk and provide some value analysis. They don’t necessarily have to have a fully baked business plan as we can use our skills to help them with direction and strategy. Our value add is to get in early. That’s our sweet spot.”
Sevin Rosen’s last round of funding included seed investments for more than half of the companies they invested in, with most funding coming in at less than $1 million.
That’s not to say that just anyone with an idea will receive funds. Kimzey said that it’s important for companies looking for VC funding to have experience in the space they are looking to get into as well as an innovative offering and a management team that understands the start-up mentality.
What 2010 holds
While the past year’s economic troubles have put a damper on the sector as a whole, Kimzey said 2010 is shaping up to be a signature year for the market.
“2010 is setting up to be a vintage year to be investing in new startups as there is less capital available,” Kimzey said. “As less money is coming from VC that means fewer companies will get funding and that will leave those that do manage to secure funds with less competition. Only the really good companies will get funded.”
Kimzey noted that the mergers and acquisitions market has been the focus of investors for the past several years as the market for initial public offerings has dwindled, though he thinks that is set for a turn around this year.
“We have three companies looking to go public this year and we have not had that for several years,” Kimzey said. “IPO’s are always good to counteract M&A as it takes out some of the competition.”