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M/C Venture Partners’ James Wade on the Staggering Genius of the Underserved Market
When James (Jim) Wade of Boston-based M/C Venture Partners looks at a map of wireless licenses for sale, he sees his pot of gold at the end of the rainbow, his treasure chest overflowing with crown jewels.
But his cartography in terms of how to get there is a bit different than one would think. In an industry driven by subscription numbers, his m.o. is to avoid the densely populated, to instead focus on the “in-between,” even the rural.
This strategy has served him well since the early 80’s when he joined the Boston-based venture firm TA Associates immediately after receiving his M.B.A. from Harvard Business School. Back then, it was an unusual decision to join a venture firm straight out of business school. But prior to HBS, he had worked in foreign exchange for a few years, trading Japanese yen. He had also worked in fixed-income trading at Goldman Sachs, which, he says, catered to people with entrepreneurial styles.
He joined TA only months after the break-up of AT&T and worked in its Media & Communications Group. At the time the firm was looking at a vast untapped market for telecom services. The strategy was “if we build it, they will acquire.”
Investing in communications services, not hardware, the team would seek-out geographical areas overlooked by larger companies, establish a service and wait for the large telcos to notice and gobble them up. “We went downstage one level of geography from where the big guys were operating,” Wade said. “If they were in the top 30 markets, we were on the next tier.”
One Spectrum at a Time
When the PCS market blew open, Wade and his team applied the same strategy recognizing that the large companies couldn’t be everywhere at once. “The big guys know where they want to be, but can’t snap their fingers and suddenly be there,” Wade said.
By this point AT&T had bought McCaw Cellular, which was formidable, but not in all markets. “We backed a management team, bought some spectrum in markets where they had not built,” Wade said. Once in place, the company, called Telecorp, went back to AT&T and brokered a deal to be an affiliate, covering areas where AT&T lacked services. “It was in their best interest to have coverage in as much of the country as possible,” Wade said, “but they knew they didn’t have the management bandwidth to be in all places.”
It was a win-win situation, Telecorp became AT&T’s largest affiliate and was compensated generously; AT&T was able to offer its customers comprehensive service. Ultimately, AT&T acquired Telecorp. Mission accomplished.
If Wade wasn’t such an affable, down-to-earth fellow, you could almost picture the Cheshire cat smile.
In 1986, M/C Venture Partners spun-out of TA Associates and in 1998 Wade became the managing partner. The fund continued on the same trajectory established at TA. Again, unlike other funds, it didn’t, and doesn’t define itself by “stage” of investment. As a hybrid between a VC fund and a private equity fund, if M/C sees a market, they go to it, sometimes even putting together their own management team to execute the vision
Such was the case with Crowley Cellular. M/C bought cellular licenses and sought out a seasoned telecom management team to build a company that would cater to underserved markets. “Southwestern Bell and MetroMedia were building towers in Chicago and St. Louis,” said Wade. “We were building in Decatur, Champaign, Springfield and Bloomington.”
Geography Aside
In Boston, M/C was, and is, nearly in a league of its own. Its focus on telecom was unusual for an area known for the plethora of software firms which sprung up during the 80's and 90's along Route 128. Dallas or Denver seemed a more likely venue for the firm. But M/C differed from other funds in that it was not (and is not) defined by geography. “We are on planes a lot,” Wade said, “going to board meetings and visiting companies.”
Indeed, the list of headquarters of its current crop of portfolio companies reads like a line-up of Miss America finalists: Arkansas, Hawaii, Massachusetts, New York, Ohio, South Dakota, Texas and Virginia. In addition the firm has investments in a company in Canada and a company in the United Kingdom. This summer its portfolio company, PR Wireless, went live with service in Puerto Rico.
Wade points out that being in the same business sector for so long helps to mitigate the geographic schizophrenia and affords the M/C team the option to efficiently trouble-shoot problems from their desks. “We’ve invested in communications for 20 years,” he said. “We know the questions to ask and can get to the heart of problems. Hopefully, this allows us to burn up less fuel.”
Five to Fifty Million, Whatever it Takes
M/C's first fund, raised in 1998, was $230 million. The second and third (raised last summer) were both $550 million. While the firm doesn’t hesitate to invest in early-stage companies, as little as $5 million, it similarly isn’t shy about investing double digits millions. “Four of the deals in the second fund were investments of $40 to $50 million,” Wade said.
In a particular case, which echoes a private equity deal as much as a venture deal, the firm put up $55 million last May to buy the assets of National Grid Wireless US from its parent company, London-based utility provider National Grid. Wachovia Capital Partners was a partner in the transaction, also putting up $55 million. Together, they borrowed another $180 million.
“It was an un-shopped deal,” Wade said. “National Grid was selling a bigger unit in London. They didn’t want to sell this smaller piece until they knew if the buyer would want it.” Uncertain about their future, members of the U.S. management team came to M/C. The deal was put together quietly and they waited to see if the buyer of the larger piece would want the U.S. company. “An Australian company bought the larger piece,” Wade said. “They didn’t want the U.S. company. We went directly to National Grid and made them an offer of $290 million.”
National Grid has communications towers, 1,100 miles of dark fiber and an outdoor “distributed antenna system,” which it leases to providers in urban areas where it is difficult to build more towers. Wade is optimistic about its future but not openly defining the firm’s exit strategy.
Management on Call
In the case of National Grid, M/C worked with the current management team. However, when it needs to bolster the executive ranks, it turns to its network of former execs and longstanding contacts in the industry. “We give people a call and ask them if they want to `suit-up’,” Wade said. “Or we ask them for the names of 10 people they know who may want to suit-up.”
Wade noted that two of the first four deals they’ve done under the new fund have repeat entrepreneurs in managment. For PR Wireless, M/C tapped an executive who worked with them on the Crowley deal in 1987.
On occasion M/C uses a specialized recruiting firm to fill positions. Often the hardest position to fill, according to Wade, is sales and marketing. “Getting the right sales person is critical,” he said.
At this time, Wade indicated they had little trouble getting people to relocate. “I think people are a bit hungry,” he said. “There is enough consolidation and not enough huge successes in the last five years.”
A Big Win, But No Time to Gloat
One of the firm’s biggest wins is Dallas-based MetroPCS Communications (NYSE: PCS), which went public in April raising a “phone home” $1.15 billion via 50 million shares. It was heralded by Reuters as the biggest IPO this year in terms of deal size and said to be the largest technology or telecom deal since 2004.
That MetroPCS isn’t a household name is a testament to its potential and the M/C strategy. “Half the people who walk into a Cingular or Sprint store get turned away because they don’t pass the credit check,” Wade said, explaining that with MetroPCS customers pay for the phone up front and a flat-rate for service. They need not pass credit checks. “The service is for the credit challenged and the yackers,” he said.
It’s been a busy year for M/C Ventures. In addition to the National Grid deal and MetroPCS IPO, in May the firm was the lead investor on a $12.5 series C round of funding in Dallas-based Airband Communications, Inc. In March the firm invested $10 million in New York-based Speechcycle.com, a provider of automated agents for the cable and telecom industry. In June the team closed the merger between portfolio company Nuvox, based in Greenville, S.C. and FDN Communications, based in Maitland, Florida.
While M/C’s focus remains on communications, content has recently caught their eye. Their first investment in that direction was in California-based Legendary Films. “We’re interested in new media and content as they relate to the networks,” Wade said. “The thesis is that the value of content will increase as the number of networks it can roll out on increases.”
Wade is equally busy on the home front, where he and his wife Margaret are raising four young children six-year old twin girls, a five-year-old and three-year-old. The family loves to sail and recently bought a vacation home on the coast of Connecticut.
In Boston, the firm continues to prosper and grow. Earlier this spring, it welcomed Salvatore (Sal) Tirabassi. He came to M/C from Dolphin Equity Partners. At Dolphin, he led investments in and served on the board of eight portfolio companies, including Airband, Epic Cycle, Gomez, MaxPreps (acquired by CBS in 2007), SilverCarrot, The Guild, Vercuity and VitalStream (acquired by Internap in 2006). Prior to Dolphin, Tirabassi worked in product development and marketing at Diamond Lane Communications (acquired by Nokia in 1998). Prior to Diamond Lane Communications, he was an early employee at FutureBrand, a strategic marketing consulting firm (acquired by Interpublic Group in 1997).
Sadly, M/C Ventures also lost a partner, Peter H.O. Claudy, who passed away in May after a long battle with cancer. Claudy was a past president and served on the board of directors of the New England Venture Capital Association.
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