Insider Information

According to Orange Ventures' Mike Dolbec, venture capital firms are divided into three general categories.

Some VC firms place the most importance on the management team — in particular, the CEO. They'll back a guy because they trust that he wouldn't get involved in something stupid — and if he did, he'd come up with a way to get out of it.

Others trust their gut instincts. They believe that if the world is ready for a new idea, all they have to do is drum up some demand — that with a little work, everything else will fall into place.

In the third category are the firms that make investment decisions based largely on their understanding of target markets and when those markets will want a particular solution. It's here that Dolbec places Cambridge, Mass.-based Orange Ventures. And it is this understanding of the wireless industry, and in particular wireless carriers — how they think, how they prioritize and how they choose a vendor — that the firm has in spades.

The name isn't an odd coincidence or attempt to siphon off a certain carrier's reputation. Formed two years ago, Orange Ventures serves as the venture capital arm of London-based, France Telecom-owned mobile operator Orange SA. Not surprisingly, the stated mission of the $225 million fund is to invest in companies that support the infrastructure, underlying technologies and applications that support Orange's mobility strategy. As such, five of the firm's six investments — among them Danger Inc., Radioframe Networks and WaterCove Networks — are either wireless software platform developers or infrastructure companies.

“All of us here have operating experience in the wireless industry and have an understanding of how carriers operate,” Dolbec said. “We make our decisions based on the feelings we have and the judgments we make about when the market will be ready for particular technologies.”

Dolbec's resume reads like that of someone who's gotten to know the industry and everyone in it very well while hovering just underneath the radar: co-founder and senior vice president of business development for OmniSky. Head of business development at 3Com. A veep for IBM's Networked Applications Services Division. Strategy consultant to WebTV, Verisign and Openwave Systems. VC work with Greylock and Kleiner Perkins Caufield & Byers.

Since February, Dolbec has served as a general partner with Orange Ventures. His job entails exactly what you'd expect a VC to do. He seeks out potential investments, analyzes companies' management teams and market potential, picks out the best opportunities and gives operational guidance to his portfolio companies.

“I think they hired me because I knew what I was doing as an investor, and I had operational experience as an entrepreneur,” Dolbec said. “I've been on both sides: I've written checks as well as asked for money.”

Right now, the checks are being written for companies that assist carriers in their migration from circuit-switched to packet-switched networks, Dolbec said. To take advantage of this migration, it helps to know how wireless carriers are going to implement it. Most service providers, particularly those in Europe, are transitioning with a phased approach. Therefore, Orange Ventures analyzes these phases and tries to identify which companies have the right technology that will be ready at the right time.

Timing is critical. As a rule of thumb, VCs seek out companies whose products will have an active market within 18 to 24 months of investment. Otherwise, they run the risk of going broke, or seeing their product become technologically obsolete.

“If you understand how operators upgrade their networks and why, you realize that it creates opportunities for other players to enter,” said Dolbec. “There's not much opportunity in between phases, but each new round allows new players to show up.”

And to take full advantage of an impending technology shift, a company must understand its chain of events, Dolbec said. “It happens in a certain way. First, I need some edge routers to get the packets off of a radio access network and onto a data network. Then I need some way to mediate that traffic and count what's going on, particularly if I'm in Europe and have trained my subscribers to accept pay-as-you-go. Then I need a way to bill for that.” And so on and so on….

Betting millions on the details and precise timing of a technology shift may seem like a huge risk — and it is, no matter how much a guy understands the markets. Orange Ventures, though, has a rather obvious tool that most VCs can't count on: unfettered access to a major wireless carrier.

Because the mission of Orange Ventures is to help sustain its parent's view of mobility, the firm relies heavily on the feedback it gets from Orange SA. But this information doesn't come as instruction on who or what technologies to invest in. Rather, it allows Orange Ventures to see the world through the eyes of a carrier.

According to Dolbec, Orange Ventures sits down with the network architects at Orange and asks the carrier how its network of the future will look, why it will look that way and how the carrier plans to get from PowerPoint slides to installing and running equipment. They also can pick the brains of the company's upper management about strategy and planning. “At Orange, it's fair to say we have access to everybody.”

Of course, following one carrier too closely can be dangerous. A carrier's strategy can change for any number of reasons, and there's always a chance that strategy goes against the grain of the industry.

To get a more complete view of the carrier sector, Orange Ventures is constantly surveying other mobile operators. Of course, these contacts are less official than the firm's dealings with Orange SA. Usually, it entails simply calling a source at the carrier. And if Orange Ventures doesn't know the right person at the company they're interested in, they'll know someone who does.

This inside information doesn't sit stagnant after it's used to wade through investment opportunities. With their understanding of and access to carriers, Dolbec and his partners give operational advice to the companies they invest in.

One of the companies Orange Ventures has bet on is WaterCove Networks. Founded in 2000, the Chelmsford, Mass.-based vendor provides infrastructure equipment for the mass-market deployment of personalized mobile data services (Wireless Review, March 2002, page 64). Orange Ventures participated in WaterCove's second round of financing, which closed at $40 million in March of last year.

According to Dave Mancuso, WaterCove's director of corporate marketing, Orange Ventures provides the company with details on the business and technological challenges that carriers are facing. “They give us very practical, real-world insight into what's going on in the operator community,” he said. “It really prevents companies from having to develop technology in a vacuum.”

It is this ability to help companies understand the market — even after seismic shifts in the landscape brought on by the recent boom-to-bust cycle — that Dolbec says is Orange Ventures' true competitive advantage.

“We'll help our investments understand what is fundamentally a complex and confusing process for start-ups,” he said. “Our value-add is to help companies understand how to deal with operators and how to navigate in that world before they run out of cash.”