A different kind of VC

Sprint PCS, Motorola, others look outside for wireless Internet opportunities With a little capital and a lot of industry experience, wireless companies are helping start-ups take technology ideas from inception to market, while also reaping the benefits. The fusion of wireless technology and the Internet has given rise to wireless venture-funding initiatives from carriers, vendors and well-known Internet and cellular trailblazers. Financial support will help push wireless Inter-net technology forward, and the industry experience that stands behind the funding could help make wireless Internet viable.

Sprint PCS wants to be in close contact with future technology and add to what it already has achieved. To that end, the company teamed with Internet incubator eCompanies at the end of August to launch an incubator dedicated to wireless. The carrier invested $15 million in eCompanies Wireless, which will work with wireless start-ups during their early development stages. Besides its financial investment, Sprint PCS will provide resources such as technology, usability research and industry experience ( Telephony, Sept. 4, page 9 ).

"We added the external effort to our internal activities so we can end up with a full portfolio," said Tom Ellsworth, vice president of incubator development for Sprint PCS. "It will keep us in close proximity to technology ideas at the concept stage."

The carrier will focus its investments on wireless applications and specific infrastructure technologies, including mobile productivity and business-to-business applications that could enhance its wireless Web offering. Other areas include mobile commerce, entertainment and technology applications.

Sprint PCS imagines that the incubator investment could become somewhat of a trend in the industry. "Anytime one company takes a leadership position, it spurs others to replicate its success," Ellsworth said.

The products and services that are born from eCompanies Wireless will be available to all wireless carriers. Incubators and other venture capital models allow the backers to keep an eye on emerging technologies and benefit from their development.

They also can give the wireless Internet industry a boost.

"The wireless Internet already is picking up steam. The incubator will extend it and add momentum to the efforts that we have under way to extend it," Ellsworth said.

Sprint PCS' $15 million is expected to facilitate the incubation of eight to 10 concepts per year. While the operator will have a presence on the board of eCompanies Wireless, the incubator will hire its own staff.

"Sprint PCS has a history of innovation, so [our efforts] to help build an innovation arm should not surprise anyone," Ellsworth said. "We keep an eye on the technological forefront so our customers can benefit."

Also in the technology investment game is Motorola. One Motorola Ventures completed 16 investment deals in 2000 after settling just one in 1999.

The wireless Internet industry is growing at a frantic pace. For Motorola, which already has planted its feet in wireless, taking an interest in other companies is a way to stay in step with changing technology.

"Motorola traditionally has done things internally, but now we recognize we must look outside," said Jim O'Connor, managing director of the Midwest for One Motorola Ventures."Any deal has to have value for Motorola and the start-up."

Backed by Motorola's brand name and wireless technology experience, the $100 million investment fund was launched to give the company access to wireless Inter-net technology. Start-ups that Motorola funds benefit not only from the cash infusion but from the company's distribution channels.

Representatives from One Motorola Ventures sit on the boards of the start-ups; they also maintain daily contact with them to discuss ideas and other potential partners for the specific investment.

"The big difference is that a corporate venture is strategic, and there is intent to work closely, unlike a VC, which is mostly financial," O'Connor said. "The whole notion of Motorola working with start-ups is important for everyone in terms of technologies."

In March, former Microsoft employees teamed with several prominent wireless play-ers to form Ignition, a wireless-focused venture capital fund ( Telephony, March 13, page 26 ). Since its launch, Ignition has announced its investment in etrieve, a wireless e-mail company (see sidebar).

Ignition plans to have a limited portfolio so that it can become involved with the development of companies, said John Zagula, a vice president at Ignition. Though it has announced only one investment, the company is quietly working with several others, Zagula said.

The recent performance of some wireless data stocks caused industry observers to compare the activity to the Internet stock backlash. But Ignition remains positive about the industry.

"We retain our excitement about the wireless Internet. We are in this for the long haul," Zagula said. "We are not financial engineers; we help create companies, which takes patience. If people are ruled by the day-to-day activity in the stock market, then they will not succeed long-term."

The key to Ignition is partnerships, Zagula said. The company does not just invest in start-ups; it makes long-term commitments.

"We are inspired by what the wireless Internet can do for people's lives," he said. "We want to build companies to be leaders in this industry."

etrieve, a wireless e-mail company, and Centerpost, a company with a smart messaging platform for wireless Internet-enabled devices, have benefited from their prominent backers and have been able to give something back.

etrieve was founded nearly two years ago, though its business team was established in May 1999. This past June the company announced the launch of etrieve M3, a mobile message management service that allows mobile users to listen and respond to their e-mail, including attachments, via a wireless phone. At the same time, etrieve announced that it was the first company to be funded by Ignition.

"Ignition was different because it brought the combination of operational experience and the ability to build partnerships and respect from industry contacts," said Mike Maerz, CEO of etrieve."They don't just open up a Rolodex and introduce us to people. They help solidify our value proposition and find where it could fit with other peoples' businesses."

etrieve's M3 solution allows users to prioritize their e-mail-based preferences. It pages users when high-priority messages come in and delivers the information via voice, Web or fax.

"We believe mobile business people need a set of tools to extend their office into the mobile environment," Maerz said."People use e-mail like they used voice mail a couple of years ago."

The company initially will target sales people, consultants and others tethered to the office via e-mail. The company also is looking to partner with wireless providers and portals but has yet to make any announcements in this area.

etrieve, acting as an application service provider, will host the M3 solution and provide the capability. M3 encodes a copy of the e-mail with SSL for security and sends the message to the etrieve gateway, where information is partitioned and user rules are applied. If a user wants to receive e-mail in the form of voice messages, the messages could run through a text-to-speech engine. The user downloads an agent to his desk-top and personalizes the settings.

The younger Centerpost has a couple of things in common with etrieve. The 8-month-old, Chicago-based company has a wireless-focused investor behind it and a penchant for e-mail applications.

In August, Centerpost introduced its messaging solution, SmartDelivery. Before that, the company closed an investment deal with One Motorola Ventures.

"It was a match made in heaven for both of us," said Juergen Stark, CEO of Centerpost."Because our platform interacts with devices, it is good to have a relationship with a company that knows what is coming."

Centerpost's solution works over existing Internet and wireless devices like e-mail. Unlike e-mail or unified messaging, SmartDelivery has a core platform based on extensible markup language (XML). The XML tags carry information that allows Center-post to deliver the messages to the appropriate device based on the type of message. If a message is long, it could be delivered to a customer's fax machine. A short message might travel to a pager or cell phone.

"XML allows for a rich set of descriptors, which allows Centerpost, the receiving platform, to do intelligent things to content," Stark said.