Last month my portfolio company, UK-based Axis Network Technology, was sold to Korea-based Ace Technologies for $35M. It was a great outcome for all involved as BVP was the only institutional investor (£3M), following several years of bootstrapping by the entrepreneurs, Simon Mellor and Steve Cooper. Unlike most of my investments over the past 2 years, Axis was not an Internet company, but rather an RF subsystem company focused on being a key enabler for 4G wireless base stations.
At the time of the investment in the summer of 2007, this was a very contrarian decision. But something struck me about the entrepreneurs and the proven market for remote radio heads they were addressing(in 3G). The strength of their entrepreneurial spirit was manifest in their decision to bootstrap their venture by first finding customers and then developing products based on this intimate understanding of the customers’ needs. Furthermore, I was excited by the fact that Axis was following two familiar and successful paths in the telecom subsystem segment.
The first was exploiting a shift within telecom OEMs from in-house development to third party merchant suppliers like Axis. This has been played out successfully multiple times by other start-ups over the last decade, including a former portfolio company of mine, Dune Networks (sold to Broadcom), in the switch fabric segment. The second was paving the path for software/IP to replace low margin hardware, or rather exploiting the commoditization of existing hardware rather than developing yet more complex hardware. As a result, no OEM or competitor could match Axis’s price/performance, which made them the de facto standard in the LTE and WiMAX radio market. I love these themes and will continue to invest in them should new ventures come my way.
For my readers, the take away here is that contrarian investment in out-of-favor sectors can still be made wisely and profitably. However, the entrepreneurs and investors need to practice the same capital efficiency and scrappiness that we have come to expect in Internet start-ups. Leverage the innovation of others, engage with customers immediately, focus on the customer’s business pain, start with a minimal viable product (MVP), and pursue a business model that can be profitable even without massive volumes.
Axis is the first LTE focused start-up to be acquired, and likely one of only a handful of WiMAX start-ups to ever deliver venture returns to its investors. Congratulations and thanks to the Axis team!