Battery Ventures today is announcing that it has led a $100 million Series A investment in Pocket Communications Northeast – a telecom startup in a very crowded space, with many large competitors, including one that Battery itself funded over a 10-year period. It’s a hugely ambitious gamble, but one the firm expects to pay off, and quickly.
Pocket Communications Northeast plans to sell flat-rate, unlimited use wireless voice and data services beginning in the towns of Poughkeepsie, Hartford, New Haven, Springfield, MA and Pittsfield, MA. Battery was joined in the funding by Charles River Ventures, which owns a minority stake.
Pocket is an independent spin-off of San Antonio, Texas-based Pocket Communications, which launched in 2006 and is already seeing annual revenue of $100 million thanks to the nearly 300,000 subscribers it has signed up at several hundred retail stores around Rio Grande Valley, San Antonio, and Laredo, Texas. Indeed, according to Battery partner Matt Niehaus, who led the deal for Battery and sits on the new company’s board, Pocket Communications Northeast will be relying heavily on the “playbook” of Pocket Communications’ founder and CEO Paul Posner, who will steward both companies for now. (Niehaus suggests that a separate company was created to satisfy the VCs’ risk-return objectives.)
Pocket Communications and Pocket Communications Northeast have plenty of competition, of course, from behemoths like AT&T and Sprint to MetroPCS, another Battery-backed prepaid wireless company that held an IPO in April 2007, and that Battery funded four times between 1995 and 2005.
MetroPCS raised a whopping $1.1 billion from a long line of investors in the 13 years it took to go public. Unlike MetroPCS in its earliest days, however, the entity that Battery and CRV are backing already owns spectrum, having bought two swaths from the FCC in 2006, and according to Niehaus, the $100 million is “all the money we need for the business. It’s a fair amount, but the business has the advantage of generating cash flow rapidly.” Indeed, Pocket Communications would already be profitable, if not for investing in its own growth.
Niehaus also maintains that PCN won’t go head to head with MetroPCS, which recently announced plans to move into Northeastern cities, including like Philadelphia and New York. Pocket’s recipe for success, he suggests, involves entering lower-income neighborhoods where “target customers live and work and play” and where Pocket can find inexpensive real estate to launch “very simple, small, but very functional stores.”