The "Less Hype" Strategy

Stuart J. Ellman Jan 15, 2011 Back to blog

These days consumer businesses often get more attention in the tech press and start-up community than the B2B and infrastructure businesses that enable them, even when they are significantly less valuable by any financial metric you can think of.  

When mint.com sold to Intuit for $170 million, it dominated the tech headlines for days.  But on the same day Adobe acquired Omniture for $1.8 billion; 10x greater sale but with maybe 1/10th the buzz.  To take another example, does anybody remember that prior to this consumer wave, two of the best VC investments ever were the B2B companies Cerent and Ciena?

At RRE we like to ask the question:  where in the value chain is there the greatest opportunity?  How do we play this particular trend? Take our investment in Broadsoft, for example.  Broadsoft is a leader in business and residential VOIP applications.  Ever heard of it?  Here is the sexy tagline they use on their website:

Today, our product is deployed in more than 425 telecommunications service providers’ networks and empowers them to deliver enhanced and personalized communications and entertainment services to their businesses and residential subscribers.  BroadSoft serves 15 of the top 25 largest telecommunications carriers in 65 countries and in 25 languages.

Here’s what is interesting to me:  Broadsoft went public last year with Goldman Sachs as the lead underwriter.  It was the fourth best performing IPO of the year.  It did a very successful secondary offering last month.  It continues to trade higher on what look like great business fundamentals (full disclosure, we are not an insider on this company any longer and have no non-public information).  It rides a great trend, but not directly to the consumer. Our portfolio company OpenPeak is another prime example.  They are a total hardware and software backend for tablet devices.  But they don’t sell to consumers, they partner with companies like GE, Cisco and AT&T.  OpenPeak is executing extraordinarily well and we believe it’s a great company. The  CEO is a killer.  The company is a VC dream.  And you’ve probably never heard of them, but I’m guessing you can name more than 10 tablet app start-ups that have no revenue. Many of our other deals have similar stories.  Pontiflex, the leading email and social acquisition platform, is an under-the-radar company in the hot ad-tech market and has terrific growth.  Great venture deal?  Sure looks promising.  Ditto for Payfone, a company we incubated that has built the world's first and only mobile payments platform that leverages the capabilities of existing inter-operator networks.  Given the contracts it has signed, it looks huge.  I could not be happier about being an investor in this company even if no one hears about it until we exit. This is not to say that we don’t invest in consumer companies or that they won’t be successful.  We have some amazing consumer facing investments (Recyclebank, Quirky, Business Insider, and many others).  But don’t forget about the infrastructure plays.  These have historically and will continue to be some of the greatest venture money makers.
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