Operators Step On The Accelerator

Phone Halo, a Santa Barbara-based start-up that makes devices that let you keep track of your phone and easily lost or forgotten items like wallet, glasses and keys, jumped at the chance to apply to become a member of the Orange Fab accelerator's first group of entrepreneurs.

Since joining the French telco’s accelerator program in Silicon Valley the company has sold over 100,000 devices. Phone Halo’s revenues have grown from $100,000 to more than $1 million.

“When it comes to doing business with Orange [being in the accelerator] is insanely helpful,” says Chris Herbert, Phone Halo’s CEO.

Halo effect: Since being a part ofOrange’s Fab accelerator revenues at the California-based Phone Halo have shot up from $100,000 to $1 million. Being in the program was “insanely helpful.”

Orange, which also has programs in France and is opening up in Israel, Poland and Japan, is by no means the only former state-run telco to jump on the start-up bandwagon.


Telefónica has invested €9.7 million in 297 start-ups

Spain’s Telefónica was first to seize the opportunity, launching its Wayra program in 2011 in Colombia, and now operates accelerators in 12 countries. Some 23,000 entrepreneurs have applied, says Gonzalo Martín-Villa, Wayra’s global leader. So far Telefónica has invested €9.7 million in 297 start-ups.

Germany’s Deutsche Telekom has its hub:raum program, which supports start-ups in Berlin, Krakow, and Tel Aviv. More than 30 start-ups have been through its accelerator; DT has invested in eight so far. Vodafone's xone incubator, based in Silicon Valley, was launched in 2011, and now also works in Milan and Egypt. Vodafone Ventures was actually one of the earliest investors in mobile start-ups, starting in 2000 and increasing its joint activities with VCs in 2006.

But not everyone is a fan of telco accelerators. Michael Jackson, a partner at Luxembourg-based venture firm Mangrove Capital Partners, says it would make more sense for phone operators to spend the same amount but invest larger sums in a few already-established start-ups with market traction, rather than investing a little bit of money in lots of very young companies.

Totally Absurd

“It's totally absurd that mobile operators continue to start incubators and seed funds that are completely incompatible with their corporate structure, their shareholder desires and the needs of the start-ups themselves,” he says. “I'd much prefer that mobile network operators [MNOs] showed an open mind to offering the mobile distribution channels and infrastructure that are sorely needed by young businesses all over the world. Here MNOs could really contribute where they are strong, and benefit from the opportunities they can reap through close interaction with young, leading-edge companies.”

“It's totally absurd that mobile operators continue to start incubators and seed funds that are completely incompatible with their corporate structure, their shareholder desires and the needs of the start-ups themselves”

Michael Jackson, partner, Mangrove Capital Partners

While opinions on the way operators should engage with start-ups may differ, just about everyone agrees that it is a good idea for large European companies to work more closely with start-ups. European start-ups have traditionally been at a disadvantage because U.S. companies buy from young companies and acquire them; big Europeans have traditionally not done so.

At the annual meeting of the World Economic Forum in Davos, Neelie Kroes, Vice President of the European Commission and Commissioner for the Digital Agenda, announced the creation of the European Digital Forum, a think tank dedicated to growing Europe’s digital economy. Founding partners include Telefónica and Orange. “Start-ups are the answers to solving our problems,” Kroes said in an interview with Informilo in Davos.

Dialing For More Than Dollars

Nor is it just the telcos. Companies as far apart as the UK’s BBC and its Worldwide Labs program, to Volkswagen’s ERL Technology Accelerator, even to Coca Cola, which was reported last year to be setting up an ambitious nine-city program, are launching accelerators.

Like large corporations in just about every sector, mobile operators now acknowledge that they need to bring innovation in from the outside. They see start-ups as key to helping solve a variety of problems, including being continuously blindsided by disruptive services.

Conversely, the mobile operators believe they have a lot to offer start-ups. “As a member of the Start-up Europe Partnership [announced by Kroes] we will contribute to initiatives such as the Job Creator Tour, a series of events across Europe to connect start-ups with corporates and the investment community, which will be supported by Orange Fab and our venture Capital fund Iris Capital,” says Nathalie Boulanger, Senior Vice President, in charge of the Orange Startup Ecosystem within the Orange Group.

Based on the success of the Silicon Valley program Orange has decided to open up Fab accelerators in other markets.

“It is a journey,” says Georges Nahon, the CEO of Orange Silicon Valley, who oversees the Fab program there; Fab has just selected its second group of start-ups. “One of the reasons for doing this is to discover what we don’t know. No big company anywhere in the world can do it by themselves. We decided when we launched [the Fab accelerator program] that we did not have all of the elements of the puzzle; that we need to learn by doing and being sufficiently open and porous in working with this group of entrepreneurs and in bringing in new product and services. After all, we are not Google or Facebook.”

The accelerator program has also generated interest inside the company. “It is a recognition that we have to have a significant change in our culture; to open our windows and get fresh air in our offices and in our brains and understand how young entrepreneurs see the world,” says Nahon.

The same is true at Telefónica. While the upside is clear Martín-Villa says working with start-ups has been “incredibly challenging for us. We are a huge company that is not designed to easily engage with start-ups. We had very tight procurement processes for huge vendors and we realized that these did not work for start-ups. The good news is that thanks to Wayra we are starting to change processes officially inside Telefónica and it is starting to work.”

Orange uses strict criteria to determine which companies get selected for its accelerator, including whether it is a product fit for Orange, product readiness, team background and ease of integration into the Orange business/infrastructure. Those that make the cut get free office space for three months, mentoring and a $20,000 convertible note. If the start-up raises outside funds Orange can opt to become a shareholder.

232 Million Customers

Many entrepreneurs dream of what Phone Halo is hoping to do: distribute its products to a large enterprise’s customer base or use its extensive network of contacts and suppliers.

The company, which had already sold a product to Verizon, knows just how tough it can be for a young company to sell into a large telco. The application paid off. Not only was Phone Halo accepted into Fab, it is now in negotiations with Orange to have its product distributed to the phone giant’s 232 million customers.

“Everyone is doing it because mobile operators need to access start-ups for innovation and for internal transformation. You have better chances to be successful if you have this kind of engagement with start-ups.”

Gonzalo Martín-Villa, CEO Wayra, Telefónica

“Any sales cycle with carriers is known to be really slow so we thought maybe this could be a process that could expedite that,” says Herbert, Phone Halo’s CEO. “It definitely speeded up the connection."

A start-up behind an online platform to put artists and bands in contact with their fans on the Internet is another case in point. It is an example of how Wayra accelerators can help catapult young companies by not only distributing their services but lending a hand in other ways. Zuzeen, a start-up launched by three young Spaniards, was mentored during its time at the Wayra accelerator by an investor from Kibo Ventures, one of the country’s most active local early-stage funds. He introduced zuzeen to Betaworks, a seed-stage venture capital company based in New York City, which in turn introduced them to Rushmore, a U.S. start-up focused on changing the way fans interact with artists.

A Unique Digital Experience

Last year, the two companies joined forces together with pianist Lang Lang to create a unique digital experience during his Spanish tour. More than 40,000 fans on Rushmore followed Lang Lang on the 10-day tour. In January the two start-ups merged, using the name Rushmore, and announced a $1.2 million round of funding led by Kibo Ventures. Kibo is part of the Amerigo network of funds, promoted by Telefónica and launched in 2012. The deal marked one of Amerigo's first investments in a Wayra start-up.

Rushmore is in talks with Telefónica about doing an extended campaign with artists, says Ivan Smith, one of zuzeen’s co-founders and now chief operating officer at the newly merged company.

Of course only a few start-ups will walk away with large funding rounds, lucrative distribution deals or trade sales. But the mobile operators benefit regardless of whether the companies admitted into their accelerators succeed.

“Everyone is doing it because mobile operators need to access start-ups for innovation and for internal transformation,” says Telefónica’s Martín-Villa. “You have better chances to be successful if you have this kind of engagement with start-ups.”



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