Skype founder’s fund set to shun chat apps; “The investments we focus on are not the ones building a big user base and then hope something will happen with a business model. It doubles the risk.”

November 19, 2013 9:46 pm

Skype founder’s fund set to shun chat apps

By Tim Bradshaw in San Francisco

Niklas Zennström, the chief executive of venture firm Atomico who previously founded messaging service Skype, said that he is unlikely to invest in fast-growing chat applications such as Snapchat from its latest fund. Atomico, which is based in London with offices in São Paulo, Beijing, Istanbul and Tokyo, announced on Tuesday it has raised a new $476m fund, which it plans to invest in technology companies primarily outside of Silicon Valley.Its recent successful investments include Supercell, the mobile games company which sold a majority stake to SoftBank last month at a $3bn valuation, and Climate Corp, a weather data firm which was bought by Monsanto for $930m.

In an interview with the Financial Times in San Francisco, Mr Zennström said that Atomico looks to back innovative, product-centric entrepreneurs with an international outlook who typically make money from transactions such as online payments firm Klarna or Supercell, which sells in-game items for players of its titles Clash of Clansand Hay Day.

That entrepreneurial approach is a contrast to the likes of Twitter, Facebook and now Snapchat, which all attracted a large audience online before figuring out how to make money from it. Silicon Valley investors have often given a premium valuation to companies that put scale before monetisation and last week messaging app Snapchat turned down a $3bn takeover bid from Facebook, even though it is yet to generate revenue.

“The investments we focus on are not the ones building a big user base and then hope something will happen with a business model,” Mr Zennström said. “It doubles the risk.”

While he would not comment on any particular company, the founder of Skype – one of the internet’s first globally successful messaging services – said that there are “so many” of the “new generation” instant-messaging apps that it was “very hard to pick a long-term winner”. Tencent’s WeChat, California-based WhatsApp Messenger, Line and KakaoTalk are among Snapchat’s many rivals, as well as BlackBerry’s BBM appand Apple’s iMessage.

“What is interesting to see is that you can grow companies much, much faster than ever before,” he said.

“Then the challenge is to turn it into a sound business. We at Skype had the business model built in,” he continued, by charging to call to or from regular landlines and mobiles from the internet-calling service. “It’s hard to find good business models. A cool app that’s fun to use isn’t good enough for us.”

Mr Zennström is no longer involved in Skype, which is now owned by Microsoft, but he said the communications application was an early example that “great companies can come from anywhere”.

While Atomico has invested in some Silicon Valley companies, such as Jawbone, the maker of wireless speakers and health-tracking wristbands, and Xobni, an email management service sold to Yahoo, it prefers to invest in other parts of the world.

“The level of confidence of entrepreneurs outside Silicon Valley is growing,” Mr Zennström said, citing the recent run of successes in the Nordics, including Supercell and Angry Birds maker Rovio, which is also backed by Atomico. “It’s no longer about being a local copycat . . . Success breeds success, that’s maybe the most important thing.”

Scandinavian investors are forced to build products with international appeal because their domestic markets are too small, he added.

Even as Silicon Valley is gripped by Snapchat mania, Mr Zennström said that his focus in other regions is more due to what he sees as better opportunities for investors with an entrepreneurial background than any fears over inflated valuations in the Bay Area.

“Silicon Valley is a unique place in the world,” he said. “There is the Silicon Valley playbook. But when you’re scaling a business somewhere else there isn’t a playbook to use. It’s harder but there are also more opportunities because you don’t have this dense ecosystem.”

He said that the battle for technical talent in the Bay Area was a prime example – and an area where Atomic provides hands-on assistance to its investments.

“Talent is worldwide. Here [in Silicon Valley] it may not be as loyal to you because there is so much competition. It’s hard to hold on to that talent. In other places if you attract talent it may be more loyal but also harder to find.”