BlackBerry Partners Fund was established in 2008 by Research In Motion (RIM) and media company Thomson Reuters, along with several private investors, to create a US$150 million venture capital fund intended to “invest in the best emerging mobile applications and services.” Since then, it has made some investments in names familiar in the applications world, including location-based entertainment service buzzd, mobile app store PocketGear, social gaming company SocialDeck (recently acquired by Google) and travel services company WorldMate.
The company is “early” into its initial fund, having made twelve investments to date, and is soon to start investing from a US$100 million fund targeting China, which was created in May 2010 in partnership with China Broadband Capital Partners.
One of the big issues in the application space is that the market is incredibly competitive, and the opportunities for success small, in comparison with many other sectors. With this in mind, BlackBerry Partners Fund looks to invest in companies that offer more than just applications, for example preferring to invest in the platforms which underpin products and services.
Kevin Talbot (pictured left), co-managing partner of BlackBerry Partners Fund, says: “You can’t build a venture-backed company if your model is selling US$0.99 apps on the App Store. However, if your model is powering app stores for carriers around the world and your revenue model is to take a percentage of sales (and the market potential is over US$20 billion) like we have with our investment in PocketGear, then you can build a very big business that can generate venture returns when it goes public.”
The Fund is independent of RIM, although Talbot notes: “anyone who is a serious player in mobile and has a horizontal handset platform strategy has built or is building for BlackBerry.” Despite the independence, the relationship with RIM brings portfolio companies “unprecedented access to the BlackBerry organisation and their network of over 550 carriers in 175 countries”, and “every one of our portfolio companies has developed a proprietary relationship with RIM and is either doing business with RIM or has received specialised assistance.”
The risk of app investments
The Fund “isn’t all that interested in one-off apps”, Talbot notes, stating: “the problem with individual apps is that it becomes a hit and miss proposition and we aren’t smart enough to be able to pick the hits.” The business model behind mobile app development is also not well suited to venture investment: the cost to develop an app is relatively low, and when sold through app stores, the cost of distribution is variable (based on revenue), meaning that heavy up-front investment in sales and distribution infrastructure is not required.
An example of this where the fund is active is WorldMate, a travel services application that is available for BlackBerry, iPhone, Nokia/Symbian and Windows Mobile devices, with an Android version in beta. Talbot says: “it is the platform that links all of their travel services together that makes the app extremely powerful and compelling. Further, on the business model side, they don’t just sell apps, they power over 60 percent of the managed travel industry which gives them diversity and staying power. We like platforms over applications.”
“The statistics on apps in the aggregate are pretty awesome but when broken down for the average developer they are not that exciting. The truth is that there haven’t been that many “successful” apps. We need to separate two guys in a garage making US$1 million (if they are really successful) from a scalable business that is facilitated on the mobile computing platform. Commercial success is driven by services that people use, value and ultimately pay for,” he says.
“If we don’t see a huge market where mobile can be disruptive, and a platform opportunity, and very smart, accomplished people, then we are likely to pass.”
Previously, the company ran its Jump Start Financing Initiative, which was intended to provide start-ups with funding of up to US$250,000, “allowing entrepreneurs to focus on building great smartphone applications instead of raising seed capital.” This was subsequently shut because “we had too many seed opportunities that were too far away from our home base”, Talbot says, arguing “we believe that the earlier we invest the closer we need to be to the investment – earlier stage companies need more hands-on assistance.” The company is still doing seed deals, but not through a formal programme.
For smaller players in the market, BlackBerry Partners Fund has been involved in a number of developer competitions, for example the recent “Super Apps” challenge, which sought products that take advantage of BlackBerry platform capabilities such as tight integration with native apps, highly-contextualised software, and apps that are “proactive and notification driven”. This competition had a prize fund of US$1.5 million, with regional prize winners receiving an US$85,000 package – although this is products and services, rather than cash. The 400 regional winners will be announced at next week’s BlackBerry Developer Conference, with category winners to be unveiled in November 2010.
Among the components of the prize package is placement on the BlackBerry App World carousel, ensuring apps gain a wider exposure in the market. The promotion and consultancy elements of the package can also provide a substantial stepping-stone for small companies, positioning them well for future developments.
Looking beyond the money Talbot also notes that for companies seeking investment, there is more to it than simply finding someone to provide cash: “Every start-up is looking for funding – and few think they need advice and guidance. Smart entrepreneurs know that all money is the same and what differentiates better investors from others is the network and value add that we can bring to the table,” he says.
|Key Investors:||Research In Motion, Thomson Reuters|
|Portfolio companies (August 2010):||Aepona, buzzd, Digby, Neuraltic Systems, Nexage, Payfone, PocketGear, SocialDeck, Transpera, Viewdle, WorldMate, Xobni|
|Key Execs:||John Albright (Co-Managing Partner); Kevin Talbot (Co-Managing Partner)|