A VC’s Take on Mobile’s Future, the Economy and More

mail.google.comBob Borchers thinks the mobile industry is ripe for opportunity and that it’s going through a transformation in terms of technologies. You may know Borchers as Apple’s sedate host for its online tours of the iPhone, but his career goes far beyond video demos of high-tech gadgetry. Borchers served as Apple’s senior director of Worldwide Product Marketing for the iPhone, playing a major role in the launch of the device as well as the OS and App Store that support it. He left the company in June to become a general partner at Opus 1645_Bob_Borchers_printCapital, a Silicon Valley-based venture capital firm that focuses on early stage technology companies.
In the edited interview below, Borchers — who will speak at our upcoming Mobilize 09 conference — discusses the impact of the economic slowdown on VC investments and the value investors place on the mobile industry.
Colin Gibbs: We saw a dramatic slowdown in VC funding as the economy tanked, especially among early to midstage investing. Do you think investors’ confidence in the economy is returning?
Bob Borchers: There were probably too many folks involved in early and midstage venture than the market needed to have. The number of early and midstage investors over the last several years has declined, and now it’s starting to plateau a little bit. The high-quality ones have weathered the storm and seem to be succeeding. Now, I think things are slowly starting to pick up a little bit in terms of firms being able to raise new funds, as well as the number of companies beginning to see new investment. We’re still seeing most investments going to things that are already funded, but there is some funding of new companies going on. We actually view it as a great time for people to start a company. There’s definitely been a decrease in the number of investments, in the number of venture capital firms, but we certainly see it starting to move along. We’re very bullish on early stage, and early stage has historically provided much better returns than other areas.
Gibbs: What about the VC community in general, beyond Opus? Are you sensing that other VC firms share your optimism?
Borchers: A lot depends on the portfolio they already have. Depending on whether their companies are doing well or not so well at the moment, that can dramatically impact firms’ confidence. It’s very much firm by firm, portfolio by portfolio. But I think when you talk to individuals, people feel like the shakeout is coming to a close.
Gibbs: How much opportunity do you and Opus see in mobile?
Borchers: I think mobile has a tremendous amount of opportunity, primarily based upon the fact that the market itself seems to be going through a transformation in terms of technologies, of products. But it’s also one of the business models in place where one can make money. This whole app-store phenomenon is just over a year old, and if you look at the impact Apple’s App Store has had on people’s abilities to create new business, that clearly is transforming things. Carriers have come to the realization that people will use data when it’s presented to them in useful ways. It’s a very interesting place to be.
But the place I’m particularly interested in is the white spaces — those places between (technologies and industries). That’s where mobile has the potential to take its transformative abilities and implement some changes in long-existing industries or markets. Take health care, for example — in my view, and I think a number of other people’s views, mobile has an interesting role to play in that. Everybody agrees that they want health care delivered more affordably, but at the same or higher quality, and I think mobile has an opportunity to help drive some of those changes.
Gibbs: Are there specific sectors in mobile that you and Opus are attracted to?
Borchers: There’s a lot of focus being paid to mobile apps today; that happens to be the sexy space. But from a venture capital perspective, I don’t think investing in app companies has nearly the opportunity for success some people think it does. I think the apps business is going to be a hit-driven business. I would much rather be looking at businesses that provide platforms that make apps successful, that support mobile ads, mobile payments — the things where you don’t have to pick what the next great app is going to be.
Also, I think infrastructure is interesting: What are the things the network operators can do to extend coverage, to make backhaul faster, to enable location awareness on networks?
Gibbs: Do you see a lot of attractive startups that may be doomed because of the economy’s effect on investors — startups that may have a compelling value proposition and sound business model, but simply aren’t going to be able to turn the corner?
Borchers: My colleague Gill Cogan is fairly famous for saying that the No. 1 failure mechanism for small companies is that they end up being under-capitalized; the runway is too short. The idea may be great, but they get to the runway before they achieve success. And I think in the last 12 months all the economic pieces have served to extend the amount of time it takes to be successful, and as such the runway needs to be longer and longer. I think there are some good companies that have essentially run out of time or energy, and unfortunately that serves as the primary cause for failure. Good venture firms will make sure the runway is long enough, that you still have the capital to be able to take off.