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The Telco is My Shepherd: Funding Innovation

By: Andrew Coward

2020 represented yet another banner year for start-up investments, with a record $130 billion flowing from venture capitalists (VCs) to start-up companies. This flood of capital did not, by any means, float all boats. In particular, the telecom sector continued the long drought of VC funding, with very few notable deals. It seems that telecom infrastructure start-ups have remained firmly out of favor with the VC crowd.

This is counterintuitive. The telecom sector is brimming with the promise of 5G, the focus on edge compute, the move to open radio access networks (O-RAN), and the disenfranchising of Chinese vendors in many networks. All this disruption should create plenty of opportunity for start-ups, so what gives? 

Wannabe entrepreneurs with transformational ideas for telecom are knocking on VC doors for early-stage funding. The reticence for VCs to invest is linked to more than a decade of poor outcomes, with few start-ups ever making it to a marginally successful exit. In other words, the barriers to entry are held exceptionally high. Success is linked to winning big in a relatively small number of telcos, which are naturally cautious and move at a glacial pace. Revenue only flows after many years of proving a new technology, and the amount of investment necessary to see the first dollars of revenue can be measured in tens of millions of dollars even for software-only products. Over such an extended timeframe, most start-ups fall along the wayside, as sponsoring teams with the customer change jobs, priorities shift, innovation budgets are cut, incumbent vendors find ways of strangling new pretenders, and projects evaporate.

Many telcos have built their own VC practice with the express intent of driving innovation, but even they are reticent to invest in telecom infrastructure companies, instead placing their bets on start-ups that run on top of the network, rather than reinventing it. Recognizing this problem, the GSMA created the “GSMA 100 Portfolio” to encourage and promote start-ups but, it has struggled to even find 100 companies to participate.

Reinvigorating innovation

What can be done to reinvigorate such a moribund yet economically critical sector of our industry? The solution is certainly multi-part and turning back on the investment spigots will only happen when there is concerted industry-wide effort to sponsor and propel start-ups to meaningful projects and revenue.

To this end, several telcos, start-ups and industry analysts have banded together to dissect the problem and come up with best practices that a telco could reasonably follow to inject start-up technology into their networks. While not formally chartered, the Telecom Ecosystem Group has built a reasonable following through LinkedIn, where best practice ideas, feedback and support is exchanged.  Ultimately, the aim is to have a best practice manual adopted by the major telcos, with a commitment to follow the practice in engagement with start-ups and smaller vendors.

Perhaps one of the more important practices to come out of the group is around shepherding start-ups through the hoops and hurdles of getting to deployment—if not lowering the barrier to entry, then at least coaching the start-up over it.

As a new vendor, the task of navigating your way through the labyrinthian and sometimes byzantine world inside a telco can feel herculean. Regardless of how well your technology and products are received, the path to deployment is long and hard. It is not unusual for large vendors to dedicate account teams of 30 to 40 people focused on one operator. The challenge then, for start-ups and small companies is two-fold. The first is institutional knowledge: how an approval process works; what steps are required to onboard as a vendor; and how long a particular activity will take. The second is people knowledge. Who do you go to for an escalation? How will a VP you’ve never met react when they have to approve a PO from a vendor they’ve never heard of? Who will fight against your technology to protect an incumbent vendor’s position?

Often small companies are left fending for themselves, becoming the proverbial lost sheep. Their deals and technologies flounder on the rocks of indifference; they are left not knowing where to turn to make progress. When this happens (and it happens repeatedly to many start-ups), innovation stalls and a heavy dependency on legacy products and vendors upsets the natural vendor tension that telcos need to maintain a healthy vendor ecosystem.



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