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Guest Article: How to dial into burgeoning market for SMART PHONES(Venture Capital Journal Via Thomson Dialog NewsEdge) With higher speeds and bandwidths, compression of power onto ever smaller devices, and fast, secure communications driving a broader range of functions, the potential for completely mobile, lifestyle-based computing is growing. In today's fast moving, youth-oriented market, with its increasing demands for mobility and function, smart phones are gaining on PCs as the dominant computing platform. And as technology advances enable even greater convergence of business and personal applications on these mobile devices, users will be able to configure them to fit their lifestyles. This significant shift in the industry is creating a huge potential market with lots of innovation and a low cost of entry. For VCs seeking new startups, however, the technology may be cheap but the time investment will be hefty-and industry relationships, management and marketing will be key success factors. Though the market is young, large and energetic, it still is in the very early stages of what will be an evolutionary process. As the process continues, users can look forward to a future in which a single smart phone will provide all of these things: cell phone service, voice over IP, video, music, photography, consumer applications (GPS, etc.), corporate data applications (CRM, on-demand field service management, etc.), legacy applications (SAP, etc.), Internet connectivity (email, online banking and shopping, etc.), authentication (voice recognition, biometrics, etc.), and games. A few years ago, such capabilities would have cost about $2,000, but today they would run $200 or less. The capabilities listed represent point solutions, that, at this early stage, no one has yet integrated. There is a clear opportunity to tackle the challenge of integrating all these applications, allowing users to configure them to match their exact lifestyle needs. While the emerging market presents excellent investment opportunities for VCs, the low cost of entry will affect the investment formula. With the technology so affordableand the building of applications so easy, almost anyone with a relevant idea will be able to enter the market. There is certain to be much competition and no shortage of interesting startups. In the flood of new ventures, however, many will not necessarily be worthy. With more players, there will be higher rates of failure, so these deals will be high beta investments-very volatile and uncertain. Know the risks VCs should be aware of, and be prepared for, the risks before entering deals. For instance, since the cost of entry is so low, startups seeking large amounts of capital should be deemed questionable. Also, established companies can pose a competitive threat because they can watch the market and see what works before jumping in to build or acquire technologies. In general, the best way for VCs to minimize risk and increase the success potential of deals is to rely on proven marketing concepts and constructs (i.e. market demand and size, product value proposition). While funding is always a key factor, VCs backing companies in this market must be prepared to make significant time investments. For instance, because partnerships are essential to breaking into the market, VCs must help startups secure relationships with the carriers, device manufacturers and content providers who can provide critical impetus. VCs also should take a major role in assembling management teams capable of bringing startups to leadership positions. Finally, with so many startups vying for a slice of the pie, it is essential that VCs help their portfolio companies create and maintain a solid focus on marketing. Most importantly, VCs should not allow the inherent risks of the new market to keep them from buying "a chip at the table." By making investments, regardless of whether or not the venture ultimately succeeds, VCs will gain experience and knowledge critical to succeeding in the next great technology market. Chris Greendale is a General Partner at Kodiak Venture Partners of Waltham, Mass. Greendale focuses on software and services investments. He may be reached at [email protected]. |