Wireless farm team

Sprint PCS, eCompanies form incubator Although land-based Internet incubators may be on the downside of their fame, wireless Internet hatcheries are just coming into the limelight. Emblematic of the new interest is Sprint PCS' announcement last week that it would invest $15 million to start a wireless incubator with eCompanies, the 1-year-old Internet incubator formed by EarthLink's Sky Dayton and Jake Winebaum, formerly of Walt Disney's Buena Vista Internet Group.

To be called eCompanies Wireless, the incubator will nurture businesses that transform existing Web content and services to wireless platforms; develop specialized applications and services for the wireless Internet; and provide infrastructure to support wireless applications and content. Two undisclosed ventures already are in the works, and the accelerator plans to fund eight to 10 new concepts a year.

"The name of the game in the industry is differentiation and product leadership," said Tom Ellsworth, vice president of incubator development for Sprint PCS.

eCompanies will be looking for "cocktail napkin-stage" business ideas in the areas of mobile productivity for enterprises, software infrastructure for the wireless Web, mobile commerce, and entertainment and gaming, said Mitch Lasky, general manager of eCompanies Wireless. However, the emphasis will be on the first two product areas because mobile commerce and entertainment ventures "are the companies that need the most care and feeding, and the barriers to entry are lower, so there will be a deeper competitive set," he said.

Indeed, the stampede of mediocre Internet start-ups and the subsequent pullback from dot-com investments have hammered the once high-flying stock of Internet incubator CMGI and caused many to question the usefulness of the incubator model. Although eCompanies had moderate success with offspring such as Icebox.com and Business.com, it also had its flops: Party planning site eParties.com sold out to eToys.com for $1.6 million after only 10 months of operation.

eCompanies Wireless plans to focus "like a laser beam" on building technical expertise for the wireless Internet and use the ruthless attitude Hollywood studios take toward projects in development, Lasky said. "We intend to bring a lot of ideas in and kill them," he said. "Incubators often fall in love with the companies they're creating. We will take a more Darwinian approach. Not all of them are going to be hits."

But attracting cream-of-the-crop entrepreneurs is difficult for incubators, said Kevin Maroni, managing general partner of Spectrum Equity Investors. "If you already have a talented management team, the administrative overhead you gain from an incubator is of modest value and the compromises you make being associated with an incubator are potentially negative," he said. "I don't think you're going to find the next Aether coming out of an incubator."

In this case, an incubator allied with one carrier or vendor could present a potential conflict of interest for the entrepreneur. "There will be moments when what is good for Sprint is not good for the company selling to Sprint's networks," Maroni said. However, the products and services that emerge from eCompanies Wireless will be available to all wireless carriers, Ellsworth said.

"The initial investment by Sprint will carry us for quite some time, but I would expect that we would seek additional investors - including strategic money from handset makers, chipset manufacturers and infrastructure companies," Lasky said.

eCompanies Wireless will provide tenants with "hard" and "soft" funding, with the typical cash investment being less than $1 million, Lasky said. The idea is to get tenants to a Series A funding round, when venture capitalists and strategic investors take over.

Recent activity by major wireless players suggests there will be no shortage of money to fund wireless start-ups as they emerge from real-world labs. Last week, Ericsson announced a $300 million venture capital fund in partnership with Merrill Lynch and two Swedish holding companies. Ericsson Venture Partners will stake Wireless Application Protocol-oriented businesses in Europe and North America.

And look for more wireless players to get involved early in the business development cycle, lending expertise in exchange for the opportunity to influence the direction of emerging technologies.

"[An incubator is] a very intelligent mechanism for supporting application developers," Maroni said. "If you're a carrier, this is an ideal way to create a farm team."