Thursday, August 18, 2005

Consumer Investing (1)

I mentioned in an earlier post that Bessemer's fund is over-allocated to enterprise security, and so several emailers asked for a preview of my next investment road map.

I am venturing out on a broad road map that several of us (led by Jeremy Levine, Rob Stavis and Ron Elwell) have been scoping out since 2002 around emerging consumer services on the internet and on mobile phones. In later posts I can get into some specifics, but generally speaking we see the greatest returns this decade accruing to new consumer service companies (Yes, I know: Duh).

Between 1984 and 1994 we funded many retailers (Staples, Sports Authority, Businessland, Eagle Hardware, Dick's Sporting Goods...) and then during the 90's we funded many consumer facing dot-coms (eToys, BabyCenter, Blue Nile, Mindspring...). But our most successful investments had always focused on enterprise and carrier, so shifting our focus to consumer actually took some real thought. (Normally we try to avoid the VC herd, but in this case they were grazing in our favorite spot.)

The global consumer technology market has encountered three major catalysts of change powerful enough to displace global markets. This is the kind of disruption we like to see underpinning investment road maps:

1. Technology Catalyst: Rapid evolution of mobile computing platforms.

Mobile computing devices have evolved for years along several technical dimensions including processing power, battery life, screen resolution, network bandwidth, I/O capabilities, storage, RAM, miniaturization and cost. Sometime around 2002 the technical capabilities hit a critical threshold that enabled the rapid development of broad new services beyond telephony. But the technical evolution is accelerating, and so we can expect the devices to continue getting smaller, faster, cheaper, more dazzling, and more versatile. Mobile computing is the new application platform, the internet of this decade. (Look, I know this is old news but it was uncommon VC thinking back in early 2002.)

2. Geopolitical Catalyst: emergence of consumer middle classes in the world's most populated countries.

The new Asian consumer markets are obviously exploding. Wireless services are particularly interesting there because for many subscribers, the phone is the only video-based computer they have for entertainment and productivity.

3. Psychographic Catalyst:

When is the last time you heard someone complain about the VCR back home blinking 12:00? Early adopting consumers used to be the exception, but today they are the norm. Look at the uptake of new technologies like Tivo, Google, Firefox and Skype--it is no longer insane to aim for 50 million users within 18 months of launch.

So what have we done about it so far? In the last three years Bessemer led early rounds at Gracenote, Skype, GoTV, Mforma, and Zensys (the Z-Wave home automation company). We have seeded and incubated about a half dozen consumer startups not yet announced. We increased our stake in Celtel, the largest African cellular operator, which was just acquired for $3.3 billion. Our semiconductor team led rounds at companies leading the way in mixed signal, low power processors for consumer devices, such as PA Semi and Avnera.

Perhaps more importantly, Bessemer opened offices in both Shanghai and Bangalore, in order to tap those markets for employees and customers. We have already made investments in both countries (only one of which, Rico, has yet been announced).

More to come on how we assess consumer investments, and specific areas of interest...


  1. Anonymous5:59 AM

    Dear David,

    thanks! Finally I find a VC who talks about the mobile space, and only the Net. I work in the mobile content and services industry (at the moment based in Brazil, a country with great potential), and it get to my nerves how VCs are usually only focused on the Internet, funding hundreds of dubious start-ups, and no one talks about mobile: soon, there will be more than a billion mobile phone users, a market so big that it only makes sense for VCs to invest in consumer mobile companies! I look forward to the next years of innovation.

  2. Anonymous12:10 PM

    Hi David,

    If you're looking into the mobile devices space, you may want to look at Mobile Adhoc Networks (MANET) and technologies/applications that take advantage of MANETs. MANETs are basically wireless mesh networks where some or all of the nodes can be mobile and the network itself can be formed in adhoc with no planning a priori...much more powerful and flexible than the mesh networks that companies like BelAir and Tropos are hawking, which are pretty much limited to fixed wireless deployment. Mesh Networks was a very well hyped company that claims to have technology with MANET like capabilities; they have since dropped under radar after Motorola bought them. My partner Chris and I are still very bullish on this space which we think could spawn a new billion $ industry.

    BTW, I had the opportunity to meet Alok, a former BVP associate based in NY at a mutual acquintance's party. He wasn't so enthused about mesh networking in general. I admitted to him that there's more froth/hype than actual beef right now...however I know why everyone's technology doesn't work so well. What's your opinion on the potential of MANET technology given that the technology problems (scalability, reliability & mobility) are solved?