Amp’d Adds $107M To VC Warchest

I don’t usually root for VC-backed companies to succeed or fail. It’s not my job and it’s not my money. The only exception comes when I publicly express faith in a company’s prospects, only to get accused of ill-informed pandering by those with more insight into the company’s technology and competitive position.

One recent (and rare) example concerns Amp’d Mobile, a Los Angeles-based mobile virtual network operator (MVNO) aimed at the MTV market. I basically got convinced of the company’s promise by CEO Peter Adderton (who previously launched Boost Mobile), and by the validation of around $250 million in VC funding from both financial and strategic investors. Mobile bloggers, however, were none to convinced – insisting that the MVNO model was inherently flawed, and that Amp’d would run into some serious troubles.

So I crossed my fingers, hoped for the best and kept tabs. At the very worst, Amp’d would fail and I’d use it in as self-serving attempt to convey my own humility.

But it seems that the finger calisthenics might be working. Amp’d just raised another $107.5 million in VC funding (Series E), with hedge fund Old Lane Management joining return backers like Columbia Capital, Highland Capital Partners, Redpoint Ventures, Intel Capital, MTV Networks, Tudor Investments and Universal Music Group. Moreover, Amp’d is currently pondering whether or not to accept additional cash. My bet is that it will end up taking some, given that each of its prior funding rounds was staged-out.

Now I recognize that VC funding does not necessarily lead to corporate success (see: bubble-era CLECs), even though the correlation is a bit stronger for subscriber-based services companies like Amp’d. But I think there is something to be said for the fact that original Amp’d backers – Columbia, Highland and Redpoint – continue to exhibit active faith in a company that has now raised more money than have some of their past funds. Not blind faith, mind you, but faith prompted by Amp’d’s ability to secure nearly 200,000 subscribers. Rumors that it still hasn’t even hit the 100k mark are simply wrong. Moreover, Amp’d also has begun to produce significant secondary revenue through content creation and distribution.

From a more macro level, much of the company’s skeptical press has been more a reflection of its market than of itself. Specifically, a number of respected mobile-tech bloggers disavow the MVNO model as unsustainable. For the uninitiated, MVNOs buy or lease unused mobile carrier spectrum at wholesale prices, and then sell the “minutes of use” to retail consumers with a device that can access specified content. Perhaps the best-known example of an MVNO – although it’s not typically thought of as one – is OnStar, the automotive communications companion that uses extra Verizon capacity. MVNOs also include content companies that provide exclusive audio and video via specialized handsets that double as regular cell phones (which is what Amp’d in doing).

One complaint is that the reseller model makes the margins relatively thin, but the more salient one is that the glut of MVNOs makes it more difficult for each one to distinguish itself – a feat necessary when convincing someone to sign up for an 18-month service contract. And it’s a legit argument, but difficulty does not necessarily presage failure.

Amp’d is not trying to be everything to everyone. Instead, it seems to have successfully aimed its pitch at a large and tech-savvy target market, in large part by taking strategic investments from that market’s most trusted content sources (MTV, Universal). Ditto for a stealthy Cincinnati-based MVNO startup called Genie (backed by Spark Capital), which is teaming with a major supermarket chain to target the Middle America market. Its target demo might make it the anti-Amp’d, but the laser focus is similar.

Again, no promises of success. But today I feel a bit more comfortable with my prior cheerleading…

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7 Comments

  • I agree with your take on MVNOs, but actually think the best-known example is (was) ESPN Mobile, which made quite a splash with all their national advertising over a year ago. They had massive troubles signing up customers, as paying an arm and a leg for the ESPN phone and then adding to that a hefty monthly price tag just for sports content didn’t seem justifiable to the average sports fan. Now they’re non-existent.

    I think the biggest problem for most of these MVNOs is that their biggest (read: only) competitive advantage is typically content, and it’s just too easy for competitors (i.e., the big boys that are leasing them the network) to distribute similar content, albeit 6-12 months later. I don’t think first-mover advantage is worth that much in this space, so pretty soon companies like ESPN and Amp’d become also-rans. Also, I’m just not convinced the base of customers willing to pay a premium for that content is sufficiently large to justify the massive marketing campaigns of a lot of these MVNOs, especially given the tight margins that come with being a reseller.

    That said, it’s obvious that several CLECs have been successful despite the majority of them fizzling out, and it’s likely the same thing will happen with this reseller model. The CLECs that have been most successful, though, are those that started out as pure resellers but then built some of their own network elements so that they could have control of their own destiny (i.e., weren’t reliant on UNE-P). I suppose we’ll find out in a few years if the MVNOs are wise enough to do the same in the wireless space…

  • [...] Trying to create an upstart hipster cell phone company is utterly expensive. Peter Adderton and Sky Dayton, the CEOs of MVNOs Amp’d Mobile and Helio, know this all too well by now. Amp’d is adding another $107 million in funding, according to PEHub and VentureWire, which will bring the company’s funding to over $360 million. [...]

  • If you don’t have control of your business environment you are vulnerable. It shocks me that VC’s continue to put money into companies with these arrangements and in this structure. I suppose they do so in hopes of a successful acquisition or IPO. To make it over the long haul MVNO’s, including AMP’d, must be in control of key parts of their business with “guarantees” from network providers for sure. Otherwise as previously stated time will undo their castle and they will hit a wall when their business can least afford it. With little to no IP ownership they are 100% at the whim of the business partners they depend on. At some point and for various reasons partners will not be there. Then what?

  • Two points….

    (i) How much VC funding did Vonage raise? I recall over US$ 700M. It was also a subscriber model.

    (ii) Please source the 100K sub figure. I’ve heard 100K, at most.

  • Dan and Don, I’d like to know your take on the Iphone. Isn’t that also an MVNO model?

  • [...] Amp’d Raises Another $107 Million Funding: Round 5 Amp’d Mobile, already heavily monetized (though that’s the nature of the business they are in) has raised another big round: $107 million, according to SEC filing, picked up by Dan over at PEHub. This fifth round was led by hedge fund Old Lane Management joining return backers like Columbia Capital, Highland Capital Partners, Redpoint Ventures, Intel Capital, MTV Networks, Tudor Investments and Universal Music Group. Moreover, Amp’d is currently pondering whether or not to accept additional cash, the story says. Dan has some analysis of why the venture might work, despite the skeptics. I said as much in my Helio post a month or so ago: “The bleeding cash part is correct, but if anyone thought anything else, they had no idea of the economics of this industry. It is a very cash-heavy business, as any retail-and-advertising driven business is, along with the customer service backend, and to judge Helio, or Amp’d and even MobileESPN by Internet-usage-and-uptake standards is fundamentally myopic. Whether they will work or not is another story (and chances are they won’t), but the point is if they ever are to, then we need a more longer term rational view.” Amp’d CEO Peter Adderton is a speaker/stage-setter at our EconSM conference in a month…we’ll have more from him then, if not before that. Related:– Helio’s Numbers And The Art of Analysis– Helio Aims To Cross 100K Subs In Q2; Launches Music Service Published Wednesday, March 21, 2007 11:47 PM by MoCoNews [...]

  • [...] know this all too well by now. Amp’d is adding another $107 million in funding, according to PEHub and VentureWire, which will bring the company’s funding to over $360 [...]

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