Tag Archives: startups

Is frequent in the it business that the success of a company fires huge amount of copycats, ie similar products or services geared to other markets to other consumer segments, incorporating some extra enhanced functionality, that makes that new application an overcoming version of the original. This sometimes happens because of lack of creativity, but in most cases because a proven business model enables on the one hand, to greatly reduce the time needed to investigate the feasibility of a project and, second, to convince potential investors more easily that it is worth to bet on the idea. At the same time, facilitates the communication of the product in the press, which often escapes from being too innovative or with difficult concepts to explain to your readers. Despite being a relatively common phenomenon, few markets saw a flurry of announcements and releases as massive as one of the newest hot markets in the mobile industry: mobile messengers.

Born over five years, but exacerbated since Facebook bought Whatsapp for 22 billion dollars, the market for messengers has continued to see the birth of new players, of which it is possible to learn through the press, publishing the emergence of a new rival or “murderer of Whatsapp” almost every week. Thus, only in the last year, we met Telegram, a Russian project that offers more security and the guarantee that will never be sold to a mega-corporation; the Chinese WeChat application, which already had more than 300 million users in their home country and began to expand into the Western market; Msngran implementation built with a focus on feature phones ; Wire, a messenger created by the founder of Skype; and lately we found out that Google and Etermax, creator of the popular game “Preguntados”  Argentinian company, are preparing their own mobile messengers. To this we add Viber, Israeli company and the Japanese; Line, probably the only large real Whats App´s competitors, which in October 2014 amounted to 449 million and 560 million users respectively.

However, despite the passing success that achieve some of these new contenders, the company acquired by Mark Zuckerberg is growing at an increasingly rapid pace, having crossed the barrier of 700 million unique users, and becoming a leader in virtually every market, making it increasingly difficult to dethrone the titanic task. In this manner, the question whether it is worth to compete in a market as hot as this one, but so largely dominated by one company, and in which its main competitors already reached gigantic user base.

The answer is yes

The reason why so many big companies invest in the market of mobile messengers, and for which many new startups are encouraged to launch their own products, has to do with several factors. For one, although it is already a mass market, its potential is even greater. In 2014 only 24.5% of all mobile phones worldwide were smartphones, which means that 75% of those with a mobile does not yet have the ability to access many of the services that these devices offer. This situation is even more evident in emerging markets such as Saharan Africa, India, and even regions of Latin America, where although there is already a domination by any of these messengers, it still reaches a small portion of the population, thus there is an opportunity for any new competitor to become a leader without the need of dethroning a previous competitor. This, for example, is what Google suggests in India, where through Android One, a line equipped with its operating system available for under $ 100 phones, plans to take the local market and create a fertile ecosystem to offer their new messenger.

On the other hand, while reaching mass audiences in more developed markets may not be easy, there is potential to target different segments or small niches with its own identity, like the business market (where the BBM continues to lead) or the market of youth and adolescents, where Snapchat became popular.

However, the key reason why it makes sense to invest in this market has to do with which, by their nature, will surely culminate in the consolidation in just one or two companies. This creates a huge opportunity. On the one hand, if a new competitor is able to develop a sufficiently attractive feature and it has the potential to capture users that already use other services can consolidate as one of those competitors. But on the other hand, a new startup that achieves to install in an emerging market, in a certain niche, or resulting annoying enough for the big players, there is no doubt that will become a perfect candidate to receive large investments in order to expand its development, to be acquired by one of the leaders, or one of the Internet giants looking to strengthen its presence in this market.

Monetization: the great challenge

Despite the enormous skills shown by Whats App, and definitely by Facebook, to grow and accumulate users, a problem that these companies still face can be a key to its future. This has to do with monetization.

Today WhatsApp does not generate money and, in fact, with a turnover of just 15 million during 2014, earned him millions to social network losses. It is still unclear what the plans of Mark Zuckerberg and his team to monetize the application are. For now, it is clear that they put the focus on market leadership, so this is a concern that deferred to the future. However, it is important to note that the incorporation of advertising can generate a low mass of users, so whatever the plan is, should be taken forward with caution.

Some competitors, however, have achieved positive balances in recent years. One of the most emblematic cases is “Line”, which billed $ 335 million in 2013 with the sale of stickers by sponsoring brands and other advertisers.

Competing in a hot market, especially one with so much potential, is risky and requires large investments and creativity. However, the benefits that a good product strategy and growth may entail are so high that it is expected that hundreds of entrepreneurs of all types and sizes will launch to conquer the market.

There are a huge number of possibilities when thinking about an exit strategy, ie a strategy to abandon a Startup and capitalized in the process. While not all entrepreneurs planned from the beginning where they plan to arrive with their projects, investors often take it into their heads from the minute they put their hands on the business plan.

The multiple possibilities includes: the sale to a competitor or a giant in the market, which generally results in a multiplication between three and ten times the investor invested capital, and a very generous pay for the entrepreneur; the acquihire, ie the sale to another company acquires the Startup for his talent, resulting in a small profit for investors and a very good job in the purchasing company for the entrepreneur; settlement, which involves closing the the Startup and generally report losses and a blow to the reputation of the entrepreneur; the Startup exploitation, which involves collecting a good salary for the entrepreneur, and the possibility of withdrawing indefinitely dividends to investors; and the IPO, ie convert the Startup in a public company listed on the stock exchange, which often lead to investors multiplied dozens of times their profits, and entrepreneurs earn enough money to live in peace the rest of their lives, or more. This last strategy is, undoubtedly, less frequent.

In the United States in 2013 only about 5,000 companies had the status of public, this is a tiny fraction if you consider that there are hundreds of thousands, if not millions, of companies  only in that country. This has to do primarily that there are a number of requirements that public companies must comply. These are: to fully open their books to the public and its shareholders requiering a fierce administrative work and submission to special rules and ongoing scrutiny of the SEC (or CNV, if we speak of a case such as Argentina). However, contrary to the ideas installed in the popular imagination, it is not necessary to make billions of dollars for an initial public offering. On the contrary, as we proceed to attract any type of investor, all it takes is showing solid metrics in a sense that builds trust in the company, and certainty that the investment will bring some sort of return (in this case, in the form of growth of share value), even in the long run.

The road to IPO

Reaching an IPO is not a short or easy way, and requires a certain visibility and plausible path back operation. At the same time, it is necessary to have a lot of resources to plan and execute the IPO, as well as an experienced and well connected team to take it forward. In general, these operations are approached by a few mutual funds that detect which companies have the potential of becoming public, and put money in them to guide them in that way.

However, it is not necessary to wait for these startups to ripen for a decade and bill hundreds of millions to launch them into the bag. For some analysts as Eric Jackson, from Forbes, even companies like Facebook, Twitter and Groupon were questioned in time for becoming public very quickly, or not having fully developed their business models at the time of IPO. According to the analyst, putting into the focus of the ordinary investor (not specialized in Silicon Valley technology funds) requires companies to answer uncomfortable questions and having to rethink its structure with total openness, which often results in greater creativity so as to start monetizing and developing their full potential.

Acquisition vs IPO

Going to the specific case of Groupon, if the company had accepted the bid for 6 billion dollars from Google, it probably wouldn’t have been forced to make the radical changes it had to do, replacing its CEO, incorporating some aspects of traditional e-commerce, and adding new monetization channels such as discount coupons from all shops and online stores. In the hands of Google, Groupon would probably have ended more like an abandoned project or as a secondary service in which the company would not have put the focus needed. While financially the acquisition would have been easier for its founder and its investors, no doubt there would not have been better for the company.

Today, companies like Snapchat which last month raised $ 485 million in financing for 23 private investors, which enabled it to survive and continued its expansion to become one of the most popular social networks (or messengers) among young, accumulating hundreds of million users could well point to becoming public. While this the Startup, which already rejected three offers from Facebook, haven´t billed a penny, it has enough traction and a high growth rate in key demographics that with the huge capital injection which represents a IPO, and the pressure that new shareholders exert over their heads, could certainly become a highly profitable company that offers great returns in the long term.

On the other hand, without developing a business model that generates revenues that allows to originate a return, an IPO can be a good way to recover the capital invested (and multiply it several times), and to compensate entrepreneurs for their years of effort relatively quickly. Unfortunately, this path is valid both for those who have a legitimate purpose to seize the traction, capital and reputation of the company to turn it into a highly profitable, and for those who simply want to cash out and forget about the company’s business.

A paradigmatic case to analyze, when we talk about IPOs carried out early, is the case of Amazon. The leader in the field of electronic commerce conducted its IPO just three years after being founded, and when it held a modest turnover of 16 million dollars. It was just an SME standards of the United States. However, thanks to notoriety it had a successful exit to markets. And it was probably thanks to public exposure, and initial skepticism of investors, Jeff Bezos was forced to consider clear objectives and develop a vision for their company, which led her to become one of the giants of the Internet, generating an incredible return on investment for those who bet on it.

Not all Startups have what it takes to become public companies. After all, besides great potential it takes at least a great metric to convince the right investors – and then to markets – that the IPO is a worth taking path. At the same time, the necessary capital is needed to carry it forward, and with enough preparation to face the enormous challenge and the great burden to carry out a public company.

However, if you have great traction, an important notoriety in the press and in a market segment, and the conviction that with indicated capital is possible to develop a large business it is not necessary to have billed even a single dollar to carry out a relatively successful IPO, and to use it to build a great company.

2014 was a great year for Latin American entrepreneurs. While Silicon Valley remains a mecca in which all look to learn the latest in innovation, and the search for resources to fund us, our region offers increasingly better projects and teams who are encouraged to innovate themselves, as well as greater opportunities and respect for the global community.

That’s why, at the beginning of the year, we chose five Startups born in Latin America, targeting different markets and designed in totally different ways that are very promising for 2015.

iBillionaire´s (Argentina / Ecuador / USA)

Founded by the Ecuadorian Raul Moreno and Argentinean Alejandro Estrada, co-founder of DineroMail, this Startup has various features that make it unique. Conceived initially as an iOS application, iBillionaire´s was created to help small investors compare their portfolios with billionaires like Warren Buffet and George Soros who, according to Moreno´s premise, often make better decisions and beat the most popular investment funds. This in itself made the company win over a lot of media coverage as well as making it a major success in the United States. However, during the last year the project evolved, and with it so did their goals and business model.

While initially the intention of the company was sustained through a freemium model, to access certain features of the application required a paid subscription. The model evolved to make the App a means to attract investors to iBillionaire´s own ETF based on thirty billionaire´s portfolio (for the English meaning of the word) to draw investors wishing to place 20 to 30,000 US dollars.

An ETF is an investment fund that can come and go at any time and that is listed on the stock exchange, as if it were an action.

The ETF iBillionaire´s is under approval and is expected to become operational in 2015, thus it is worth following the future of this company.

Games (Mexico)

This small independent studio founded in Mexico in 2012 embodies, in a way, every entrepreneur’s dream: to use their own talents and resources to create a great product that achieves success and recognition. And that’s exactly what happened with “Celleste”, the first game released by this startup which was selected by Apple’s AppStore as one of the best games of 2014, along with Boom Beach, FIFA 15 and Farmville 2, among others.

This game, only available for iOS, allows one to take control of various forces of the universe and of natural events, such as meteorites and the void of space phenomena, in order to help a group of alien cows to move between different planets and thereby protect them from danger.

What makes Elevator Games so interesting, beyond the enormous talent shown by his small team developing Celleste, is the fact that from its beginnings they did not receive any support of any mentor or investment institution. In fact, their entire team worked for two years while holding other jobs, investing their own money and time without receiving a salary.

Already established as a company, gaining reputation while also making a turn over, they intend to launch new games for 2015, so it is worth being aware of everything they do.

Criptext (Panama)

In a world marked by Edward Snowden’s revelations about the massive espionage of intelligence agencies, and in which large companies like Sony are victims of cyber attacks, it is logical that an increasingly promising market for security applications has begun to emerge.  Criptext, one of the most promising Latin American Startups 2015, is more than aware of it.

Created by Mayer Mizrachi and his team, this Startup seeks to dethrone BlackBerry Messenger as the messaging application of choice for companies and governments. The key is to apply all kinds of protections to shared information. On the one hand, the messages are encrypted and self-destruct fifteen seconds after being received. In addition, messages never show information about the issuer, so even if they are intercepted or taken a screenshot, it is impossible to prove from whom they come from. Designed for large organizations, Criptext must be installed on client’s own servers, and allows the IT department to have complete control over its members.

With only a few months in the market, this application already secured contracts with large customers, including a Regional Government, so it is advisable to remain aware of what they will be doing in 2015.

Satellogic (Argentina)

This Argentinian Startup founded by Emiliano Kargieman, embodies one of the most ambitious projects in the entrepreneurial world: to reinvent the TV. Founded in 2010 -after the passing of its founder through the Singularity University- Satellogic plans to launch small satellites which are the size of a hard disk into space, and place them in a low orbit, allowing to take pictures of anywhere in the world in HD instantaneously.

This is useful for such diverse tasks as agricultural production, security, and energy production.

This objective, that may sound far away from reach, actually it is not that far. The company, which has already raised $ 4.5 million in investment, launched its first satellite called “Tita” and plans to launch ten to fifteen this year. Keep yourself quite close in following their progress during 2015.

Bitpagos (Argentina)

Another application of Argentine origin is BitPagos, a mobile payment processor that allows Bitcoin to receive payments from anywhere in the world. Created with commerce and mobile transactions in mind, this application is distinguished from other services by a function that is extremely attractive in highly regulated Argentine and Venezuelan markets . It  allows to take credit card payments in which capital becomes Bitcoin automatically, whereby the trader always receive the virtual currency.

Having emerged from Boost Accelerator VC in Silicon Valley, this Startup is rapidly growing but it also faces the challenge of educating Latin American traders about the potential of Bitcoin as a currency which critics say it´s not yet proven.

However, with more than $ 600,000 in investment, the company promises high growth in 2015, and we will begin to see it implemented in more and more services and mobile stores throughout the coming year.