June 18th, 2004
“What you don't have,
You don't need it now,
What you don't know,
You can feel it somehow” – U2,
markets are huge. According
to the latest estimates, there is an installed base of
over 1.7 billion cell phones today. How big is that?
There are just under 2 billion televisions, the
mother of all consumer electronic devices.
And not even the telephone is as ubiquitous as
that televisions started selling en masse in the early
1950’s and that annual sales are around 90 million.
Compare this to cell phones, which really
didn’t start selling en masse until the early 90’s,
which have projected sales for 2004 at 560 million units
that again… 560 MILLION units in a year.
And growing. (Factoid tangent:
Digital still cameras (DSCs) have officially
killed film. Everyone
you know has one. Annual
volume worldwide? 35
million units. What
a great new consumer electronic market! Well,
uh, in 2004, more DSC equipped cell phones will sell
than stand alone DSCs!
The cell phone just ate the DSC market’s lunch,
at least at the low end “snapshot” type of camera).
Houses in developed countries typically have more than 2
they have more than 2 cell phones as well.
But here’s the kicker… A household buys a new
TV once every four to five years.
A household is buying a new cell phone at least
once a year. Like
the television market, most of the revenue from the cell
phone business comes from the consumer, not the
Another consumer focused gargantuan market is video
video game industry was US$7B last year in the
worldwide video game business is larger than the box
office movie business.
This is another huge consumer oriented market.
Why, then, is the early stage private equity industry
(mostly venture capital) so afraid of consumer related
is clearly a large market. But less than 20% of the
early stage private equity investment goes to consumer
oriented companies or even to companies who sell into
the consumer oriented markets.
The preference over the past decade, with the
notable exception of the internet commerce web sites
(think pets.com etc.), has been to invest in enterprise
related companies where the buyer is ultimately a
As I have stated here before, the enterprise spends a
lot of money and is less fickle about their purchasing
than the consumer. There
are also less of them, making it easier to reach through
direct and channel sales.
The biggest concern among VC investors is the
amount of spend needed on advertising and marketing in a
consumer play versus an enterprise company.
A VC gets hives thinking about funding a failed
marketing campaign aimed at the 18-24 urban female
important reason for the stodginess on consumer related
investment is that, by and large, VCs come from
enterprise and not from consumer land.
It’s what they know.
It wouldn’t take you very long at a venture
capital conference to figure out that VCs are not hip to
the latest trends among consumers.
Unless you mean “hot” trends like
wrinkle-free pants and $12 hair cuts.
Do you think VCs have woken up to the fact that there
are consumer markets to be attacked?
Yes, most have.
And they are staying in “comfortable”
territory by focusing a lot of money on consumer
electronics, like the cell phone market.
But three years ago, the only VCs investing
heavily in consumer electronics were the Asian, European
and Israeli VCs. I
in 2001 and the venture groups from
were somewhat disappointed with the fact that
lacked good consumer electronics start-ups.
Where were the chip companies?
Where were the software companies aimed at this
was mostly in life sciences and alternative energy at
We invested in a chip company selling into the cell
phone market with a focus on video.
I see a few promising opportunities in wireless
that have consumer orientations.
We have the most fertile new media/video game
critical mass of any location in the world.
Since I invested in Radical Entertainment in 1998
while at BDC, I haven’t seen many digital
entertainment deal done by the local VCs.
But the success is clearly there (Relic, Barking
Dog, Black Box and the resurgence of Radical).
Perhaps the tide is turning a bit.
But it will probably take a new kind of VC to
attack consumer investments in earnest.
Enter Bono the venture capitalist.
Yes, Elevation Partners is a new
fund that is currently raising close to $1B US for
investment in digital entertainment.
And they just announced that Bono would be
joining them as a venture partner.
So, between U2 concerts and African debt
awareness, Bono will be doing due diligence and going to
board meetings. Perhaps
Alanis Morissette would like to join Greenstone on its
next fund? “I got one hand in my pocket, and the other
one holding pref. shares.”
I don’t think there will be a major rush to do
consumer focused deals by VCs although the shift in
attitude towards them is palpable.
I think they will stay in the comfort zone of
software and hardware and not venture out into retail,
film/TV production or other non-tech consumer companies.
As the telecom equipment sector limps back to
health and the enterprise buying cycles take time to
become more robust and predictable, VCs will pay more
attention to things like ½ billion cell phones a year
and billions of dollars in video game production.
It is a cycle and my hope is that it doesn’t
get overcooked like so many other sectors in technology
have when VCs started piling on.
I wrote this column to point out that there is an easing
in the anti-consumer oriented perspective from VCs.
I didn’t write it to get a flood of business
plans in this sector sent to Greenstone.
I am like most of the existing VCs.
I have dabbled in consumer oriented investments
but my “happy place” is still in the enterprise
Bono has way cooler clothes and bling-bling.
Give him a call.
What Do You Think? Talk
Back To Brent Holliday
Something Ventured is a bi-weekly column designed
to supplement the T-Net British Columbia web site with
some timely, relevant and possibly irreverent insight
into the industry. I hope to share some of the
perspective and trends that I see in my role as a VC.
The column is always followed by feedback (if its
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