Social networking, wireless applications catching VCs’ attention

Content is king in the eyes of Canada's venture capital (VC) firms. According to two of the country's top VC companies, social networking and wireless applications are the current trends garnering the most investment.David McCarthy, the managing director of BCE Capital's Ottawa branch, says that social networking sites are hot, but they appeal to VCs in a different way than to their users."It's hot as a phenomenon but it has cooled off a little bit from a venture investment point-of-view because a lot of the social networking applications have proven to be undifferentiated relative to others," McCarthy tells Canadian New Media. VCs are interested in social networking from a different angle, he suggests, which involves the exploitation of the content. "I'm seeing a trend away from investing in the social networking sites and a trend toward investing in the mining of them and the leveraging of them," McCarthy says. "So nothing really goes away, it just kind of transforms itself into something else."McCarthy notes that social networking is "changing the nature of how news is created and delivered," which, in turn, is creating new investment opportunities. "It has totally change marketing, because marketing is basically being spread through word-of-mouth faster than it ever was before," he says of the social networking craze. "There's a whole cycle of opportunities in the social networking space to harness the information that's proliferating over the Internet."However, Rick Segal, a partner at JLA Ventures, suggests that it is hard for VCs to determine the value of word-of-mouth news platforms like social networks."I think the social networks at the high level are nothing more and nothing less than content-generation machines," says Segal. "My belief is that people looking at those kinds of investments are looking to see if there's intrinsic value in that content, or there intrinsic value in the relationships that are created by the generation of that content."Segal does see a promising investment in companies looking to further the development of mobile TV and its associated applications. He says that the two things driving mobile TV's rising take-up rates are bandwidth and demographic changes."As the new networks get deployed and there's more speed, better compression techniques and that sort of thing, it makes it a more compelling experience," he notes."The other interesting phenomenon is that you have the demographic moving up the food chain," Segal continues. "So kids and teenagers and 20-year-olds are now moving into spaces where they've got credit cards, they've got their own phones, and they're interested in that stuff. They've grown up with it; it's culturally normal for them. And as those folks enter the work force and they become a consumer force, you're going to see the take-up rate go even higher and higher," he predicts. "So my suspicion is that you're going to see more investment in the delivery of ."A lot of attention from VCs is also being focused on companies developing wireless applications that enable the ownership of cell phone and PDA screen real estate. According to McCarthy, owning that screen space gives the company a big advantage."Some of the wireless search companies have raised money at very high valuations lately because there's a believe that, and I'll use the old metaphor, whoever owns the desktop owns the customer," he says. He elaborates by noting that whoever has the real estate on cell phone or PDA screens owns the customer for the purpose of advertising. This screen also acts as the springboard for all other applications, which is another reason why ownership of the space is so appealing to companies."It's the platform for which the advertising gets delivered, it's the platform for which your search gets initiated from and, therefore, it's like Microsoft Corp. or Google Inc. owning the desktop on your PC. If you go into your browser and you start with Google as a portal, then Google has a big advantage," McCarthy explains. He mentions that companies like JumpTap Inc. and Medio Systems Inc. are developing such applications and partnering with wireless carriers to own that real estate on mobile devices. "We have predicted that because of the closed nature of the cellular industry and because of the opportunity to provide a better service to the user, companies that follow a strategy like JumpTap and Medio will be more successful eventually than the Googles," says McCarthy.Another multimedia phenomenon earning a lot of attention from VCs is gaming. But Segal notes that mobile gaming development is still significantly lagging behind the Internet gaming trend."It's a function of the space on the phone and bandwidth," Segal says of the disparity. "Based on just sheer numbers, the vast majority of that stuff is on Internet desktops." But mobile gaming remains a good investment, he explains, because the opportunities are growing alongside bandwidth.

Social networking, wireless applications catching VCs’ attention

Broadcast | March 28, 2007

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