The annual WCA sponsored “What’s Hot, What’s not” VC panel was held at the Fairmont Hotel in San Jose in conjunction with WCAI’s 13th Annual International Symposium and Business Expo on 17th January, 2007. This year’s panel was moderated by Tim Chang of Gabriel Venture Partners and had Dale Pfau of enVia Partners, Dan Rosenthal of Mayfield, Fred Wang of Trinity and Eric Zimits of Granite Ventures as panelists. The panel gave us their view of the Silicon Valley VC scene and their thoughts on trends in wireless technology and investments. What follows is my summary of the discussion. Errors and omissions are entirely possible and readers must use their judgement in assigning any value to any predictions or assertions made here.
The effects of the tech bust of 2000 are still lingering. The amount of VC money spent in 2006 was roughly the same as about 10 years ago. However, the number of deals have gone up about 10% from last year. ( There are more concrete numbers on VC funding trends in my account of the CSPA meeting which I will talk about shortly). A significant fraction of the total VC funding in the US (over 25%) goes to Silicon Valley companies and about 1/12th of that goes to wireless investments. In 2006 the trend was to fund more consumer wireless investments as opposed to enterprise investments.
The panelists opinions on what’s hot showed some variation. Consumer applications, cellular carriers leveraging data networks, WiMAX, broadband, power saving technologies, multimode transceivers were Eric Zimits’ choices. Consumer applications, especially online applications like gaming, mobile video, mobile advertising (slow growth, but lots of potential), backhaul (slow development, but new growth) were Fred Wang’s choices. Dan Rosenthal’s picks included WiFi, including mobile and WiMAX. He suggested that carriers would make bold moves to drive ARPU (average revenue per user) growth as with Sprint/Nextel’s Mobile WiMax deployment in Chicago, Baltimore and Washington, D.C.
Dale Pfau’s comments indicated that the handset market had become commoditized with over 1 billion handsets being sold. Replacement has become more important than new customers except in markets like India and China. Opportunities in the handset market were therefore limited for startups. Infrastructure suppliers might see consolidation. New spectrum licenses and WiMax may be areas for growth. Handset suppliers were mostly from the Far East due to cost constraints. Semiconductor opportunities were few for startups. Exceptions like Portalplayer riding the coattails of the Apple iPod are a possibility. Some of the VCs saw opportunities in analog or mixed signal semiconductor startups. Dale Pfau felt that 2007 would be a great year for public semiconductor companies because expectations are low. Many companies are below the norm for public market valuations. This is driving private equity buyouts.
In the carrier infrastructure space, some of the VCs saw opportunities for growth as with the Sprint/Nextel. However, with Motorola, Samsung, Nokia, and Intel being suppliers for this deployment, opportunities for smaller players may be fewer. VCs are worried about investment for this reason [AG comment : We believe that there may still be opportunities for semiconductor suppliers like Beceem to supply some of the larger players] Though the mobile WiMax trials are going on now, full scale deployment may only happen in 2008/2009. There are some comments in the press that WiMax may be forced to take a secondary role in the larger broadband rollout. One of the VCs pointed out that it may also not be too late for WiFi with companies like Aruba filing to go public. The panel felt that the fixed/mobile convergence space was not a startup friendly space. Infrastructure, especially EDGE shows growth possibilities.
The panel was asked about VC investments in China and India. The answers varied widely. Mayfield invests in China with a local VC partner and leverages local R&D tied to top Universities in China and sees many exciting possibilities in China and India. Granite and enVia fund companies which have significant presence in other countries, but do not fund companies solely based in other countries, while Trinity focuses exclusively in the US.
Some of the contrarian investments which could be successful may be in the GPS space, infrastructure components, RFID and backhaul if mobile data applications ramp. On the question of strange deals, some of the panel believed that Web 2.0 was overhyped, valuations for WiMax deals were too high and handset component companies were risky. Funding deals like the 17th photo blogging company would also be considered strange.
The panel was positive on applications, content and services on cell phone. However, the VCs don’t always know which of the applications will succeed, so they ask for evidence of traction and this can be frustrating to the startups. Just porting the internet to mobile is stale and will not be well received by VCs. Many of the cool applications are developed and deployed in Europe and Asia first. This may have to do with cultural differences in cell phone usage. Some of the application possibilities are instant messaging on cell phones, social networks on cell phones, search, mobile media apps, HD radio, FM tuners, aggregate content on cell phones etc. One of the panelists quoted someone as saying that the 3Gs that you can charge for on a cell phone are “girls, games and gambling”.
The panel also responded to some audience questions. Arma Group posed the question on whether the Apple iPhone would be a hit and whether there would be startup opportunities deriving from it. Some of the panelists believed that the iPhone would be a hit, while others believed that it was a defensive move on the part of Apple to cover for the eventual loss of the iPod market. Battery life and other issues remain to be solved. One opportunity for startups could be iPhone like services ported to lower end phones for Rest of the World (ROW) applications. Another could be a Portalplayer like supplier of components to the iPhone.
On the prospect of success for mobile video, the panel felt it could be a success, but it may be a greater opportunity in Korea, China and other Asian countries than the US. The DVB-H demos by LG at CES 2007 were impressive. The WiFi+ cell phone is a promise yet to be delivered. Currently there are less than 2M handsets with WiFi enabled. The panel disagreed with an ABI prediction of 100M WiFi enabled phones by 2009. [AG note: Maybe the Apple iPhone will change this ?]. The panel was also negative on the prospects for profitability for MetroWiFi.
As one of the panelists commented “ VCs are often wrong, but never in doubt”. Time will tell whether the thoughts and predictions from the panel will hold true. However, as with most years, the panel was comprised of a knowledgeable VC panel and presented some interesting thoughts.
WCAI’s 13th annual Expo
Attending the WCA panel above also gave one access to the WCAI’s Expo and reception. The Expo is focused on wireless broadband suppliers. In prior years this tended to comprise of a large assortment of proprietary wireless solution providers. This year it was billed as Silicon Valley’s WiMax showcase and the Expo was dominated by WiMax system, semiconductor and service suppliers. The proprietary broadband wireless suppliers were less prominent. Of course, the only service provider to date to announce WiMax deployment is Sprint/Nextel with Clearwire. To be certain this will be watched very closely as a metric for the success of WiMax. However, it will be a while before one can judge the success of this, since the deployment is expected to go beyond the trial phase only by 2008/2009, by most accounts. The trial deployments are in Chicago and Washington, D.C. Sprint’s progress announcement for 2007 can be found here. However, not everyone supports the view that WiMax will be the primary broadband solution. The proprietary broadband wireless suppliers believe that WiMax has to cross several hurdles before mass adoption. They expect this to take some period of time, during which they expect to continue their success in the niche markets. Furthermore, they expect the broadband wireless networks to be a combination of multiple solutions. The advantages of WiMax may be most pronounced for broadband mobile solutions. From talk on the show floor, one could gather that WiMax deployment was gathering steam outside the US, with WiBro in Korea and BSNL and VSNL planning WiMax deployment in India. Could this be a case where the WiMax infrastructure growth is primarily driven from outside the US ? Here's a view that WiMax is relegated to a minority position in the 4G race.
Silicon Valley’s Smart Valley Showcase
WCA panel attendees had the benefit of access to a special program session on Friday, January 19th, 2007 on Silicon Valley’s Smart Valley Network. This is a joint public/private initiative to rapidly deploy next generation communication infrastructure and provide pervasive public access to information. The program sessions ran for half a day and covered the public service vision and business model, partners plans for execution, community case studies and a panel on community services enabled by broadband wireless access. I attended only part of the program and hence my account here may not be complete. Further info on the Smart Valley Network can be found here.
