Getting telecom innovation funded

We see hundreds of telecom start-ups each year -- over 500 flow through the Telecom Council -- and many of them are at a stage of development where fundraising is as significant to their success as building or selling their product. These early-stage telecom companies want to know who is investing, what they are investing in and how to attract some of the capital that is tagged for telecom innovation.

Luckily, for entrepreneurs and investors both, over the past 10 years the cost of starting a new telecom business has decreased significantly (see my previous arguments in “Is ‘telecom innovation’ an oxymoron?”), such that we are seeing bootstrapped companies making significant progress before they go looking for their first round of funding. And they are getting funding; telecom investors are actively looking for new investments.

But the questions remain about what the venture capitalists and corporate venture players are looking to fund. What do telecom investors want to invest in?

It turns out that if you ask, they will tell you! They did just that at a recent Telecom Council meeting. And though they don’t agree on all these points, here’s a general consensus of what our telecom investors and carrier venture investors said:

· Team, team, team. The right people can get funded without or without a product. By now investors have learned that the product that start-ups release at launch is usually not the same product they pitched for Series A funding. Things change; good teams adapt.

· Time-to-market advantage. Patents are less important, but being early out of the gates never goes out of fashion. It’s not a guarantee of success, but it’s an advantage.

· Global opportunity. A product or service that addresses a local need but can be scaled globally. The local launch (or launch to a focused niche or segment) gets the ball rolling, but unless it’s a global opportunity, the upside may be limited.

· Capital efficiency. Investors want to see more evidence of thrift than they have in previous years. Web businesses should need less than $20 million to reach profitability; not even an infrastructure start-up should need more than $100 million to exit.

· 3x is the new 10x. There are fewer and fewer large exits, a lot more small-scale exits and more M&A than IPO exits. With fewer home runs, VCs are looking for base hits with more of their swings. They want safer bets.

· Sophomore failure. Surprising as it may sound, our member VCs said they like a leader with one start-up win followed by a failure. The logic being that both provide learning: one what to do and the other what not to do.

· Bootstrapping. Nothing makes a VC happier than a heavily invested founder who is willing to put his money down. This increases the skin in the game, aligns goals perfectly and raises the chances for success.

· Proven market demand. Show some success in market traction while bootstrapped and you are more likely to get funded to leverage your success.

For seasoned entrepreneurs and tech veterans, you can see that there has been a slight shift in investor behavior. But despite all the changes, one thing never seems to fade in importance, and that’s the team. There’s got to be a good reason for that, so whatever your endeavor, and whether you seek investor funding or not, be sure to get out there and network, meet the right people and hone your ideas, build those ideas with quality and customer awareness -- but above all, surround yourself with a great team.

Liz Kerton, president of the Telecom Council of Silicon Valley and principal of the marketing practice at the Kerton Group wireless consultancy, has a 20-year entrepreneurial history building and launching telecom businesses.