Mature observers might view FunkySexyCool as merely a fast and frivolous Facebook for the mobile phone. But Tim O’Connor, the Australian expat heading up the company’s US push, is playing for keeps. Paul Ryan drops in on FunkySexyCool’s New York HQ.
In a no-frills eighth-floor office on Manhattan’s West 21st Street, a block from the famous Flatiron building on Fifth and Broadway, Tim O’Connor and his small team are plotting world domination.
Typically, O’Connor shoots from the hip in a rapid Aussie dialect that leaves many New Yorkers scrambling to keep up. “G’day Mate!” he says when we meet on a chilly December afternoon, and pumps my hand. I’m ushered into a starkly-lit pre-fabricated office with unadorned cream walls. Behind one, a tradesman is making woodpecker noises.
FunkySexyCool (FSC), a mobile phone-based social network, was founded by young Melbourne entrepreneurs Peter Bewsher and Justin Moran in 2003. What began as a site for friends to share and vote on photos has evolved into a global mobile social scene for 18 to 34-year-olds. Members log-in to the FSC website using their mobile phones (or a PC) and trawl for intriguing profiles of other members. They can then vote for others as being either “funky”, “sexy” or “cool”, with the highest vote-getters appearing on the homepage. There is a points system and premium services, but voting and socialising is the heart of the matter.
Sound frivolous? Perhaps it is, for those of you who can remember a time before mobile phones. But for the millions of ‘kids’ who have known nothing else, mobile phones are now a seamless extension of their computer. In many cases, the mobile phone is the centre of their universe. (If you just scoffed, try watching a teenager text message some time, and then contemplate the impact Apple iPhones and 4G bandwidth will have on our already hyper-connected youths.) These days, mobile technology is not just a handy social appendage – it drives social interaction.
From a business perspective, these approaching advances in technology and infrastructure represent a new frontier for mobile application and service developers. Think of the web 1.0 and 2.0 revolutions, but this time in everyone’s pocket. The battle to be every user’s favourite mobile destination of tomorrow is very much underway today.
Sipping the kool aid
O’Connor, now 47, was headhunted in 2006 to relocate FSC to New York and bring his connections and international management experience to bear as FSC geared up for a second round of funding.
So why did he feel the need to relocate this globally ambitious Australian technology company to America.
“It’s about money, pure and simple,” says O’Connor, who chose New York over the West Coast due to Manhattan’s tougher, hard-nosed attitude towards start-ups and investment. “There just isn’t the money in Australia. There could be, but there isn’t. There is an ignorance in the venture capital industry and in Australia more generally about what start-ups really need to become a global company. It’s not the $100,000 or the $200,000 – that’s fine. But you need some international experience to evaluate these companies and identify their potential on a global scale – and to fund them appropriately. If you don’t, you won’t make it. You need money.”
O’Connor knows his way around international capital raising. After starting out life as a management consultant, he moved to London to consult for PricewaterhouseCoopers before going out on his own. He wound up studying an MBA in the south of France, where he was asked to help start and build a video tech company – Obvious Technology – in Paris in 1996. He raised US$17 million over a three-year period and relocated the company to San Francisco at the peak of the tech bubble. Obvious Technology never exploited its market opportunity, which O’Connor puts down to the company’s unsuitable executive management – a technologist masquerading as a CEO.
“I’ve worked in France for five years, the UK for five or six years and in America for more,” says O’Connor. “I will hire Australians over anyone else because they’ve got that bite. You can see it in their eyes. It just pisses me off that we have so much ability in Australia but so many of us don’t believe we’re worthy of global success. So we end up getting squeezed by investors and venture capitalists with an idea that we think is worth $1 million but is actually worth $100 million.”
O’Connor believes Australian companies relocate to California and elsewhere in America mainly because venture capitalists are more likely to throw $2-5m at them. ”They’ll take 80 percent of the company, but they will throw that sort of cash…. You can only bootstrap a company for so long before you need a significant cash injection, or you’ll miss your opportunity. The tech sector doesn’t wait for you to get your house in order.”
Stretching the bootstraps
A couple of weeks after O’Connor joined Bewsher and Moran at FSC, the founder of Sun Microsystems offered US$5 million investment terms that would have seen the founders giving up two-thirds of the company’s equity share. [Clarification: since this article was published, O’Conner has indicated that this figure was significantly lower.] O’Connor dowsed his younger colleagues’ enthusiasm and advised against accepting the offer on the basis that they should retain as much equity as possible for as long as possible. His other concern was that VCs are not like Angel Investors. An investee company is just one of many in a VC’s portfolio. From the moment a term sheet is signed, timelines and personnel are determined by imperatives beyond the founders’ control.
“We’ve raised US$2.2 million from private, high net-worth individuals so far,” says O’Connor. “We took the strategy of protecting the original shareholders’ value. Several people have looked at our capitalisation table and asked how we got so far without giving away more of the company. It comes down to belief and what you think your value is.
“You have to balance when is the best time to go and get the institutional money. If you are desperate for the money, you’ll get squeezed. Finding that balance is very difficult because you are dealing with companies such as telco carriers that are not too sure when they can go live with you. You are a start-up dealing with corporates. You can’t tell a corporate to hurry up. If it is going to take them three weeks to do an agreement, it will take them three weeks. It’s a tough call.”
O’Connor holds great respect for Facebook founder Mark Zuckerberg and Craigslist founder Craig Newmark, both of whom rejected significant investments in their start-ups by responding that they didn’t need the money. “When you think about it, if money is not a driver for them, it’s about the business,” he says, palms open. “That’s the way we should be doing business. We shouldn’t be going out there thinking, ‘If I do this I’m going to make a lot of money.’ You should be doing it because you want to do it. If you really want to do it, the money is irrelevant.”
Just prior to publishing this article, O’Connor confirmed that FSC had engaged a private investment bank to assist in the company’s goal of raising US$10m from institutional investors.
It’s been full steam ahead for O’Connor, Bewsher, Moran and the FSC team. After successful trials first in Australia, then in Germany, Switzerland and Austria prior to O’Connor’s arrival, the technology was taken underground for 12 months and redeveloped into something that could scale up rapidly, across multiple countries, languages and, crucially, telco platforms.
The key to FSC’s potential lies in the structure of the market. Consumers don’t expect things for free on their mobile phones the way they do now on the internet. They are quite content making micro-payments for content and services (think text messages or the latest ring tones). A micro-payment of $0.50 or $0.99 (the cost of most “premium events” or of making direct contact with another user on FSC) doesn’t cause much hesitation for most mobile users. It can add up to some hefty monthly bills, but, by and large, mobile users seem to know what they are getting into.
One of the great impediments to mobile phone internet usage to date has been slow browsing speeds and persistent data charges. With that set to change over the next few years, FSC has geared its application to scale up as mobile web browsing hits the mainstream.
At the time of writing, FSC has around 200,000 members globally, with about 20,000 of them based in the US. The service is available in every country and in ten languages. The company has been experiencing 25 percent month-on-month growth and O’Connor predicts that the global membership will top one million by mid-2008. FSC has major strategic alliances with MTV, Nokia, T-Mobile and Hutchison 3, to mention just a few.
Earlier this year, Ford Models signed up to develop a VIP section in FSC, which will be offered to its membership of 250,000 models. While the section will be invite-only, Ford members will be able to invite non-Ford FSC members inside. O’Connor admits that, in addition to the extra exposure, this deal will help foster FSC as a high-class brand. It’s part of the company’s effort to maximise mass appeal while minimising some of the unseemly elements that attend any mainstream social network.
“We‘re sitting on a really hot product at the moment because we have spent a year and a half beta testing. We know what works and what doesn’t,” says O’Connor.
Life is hard in a start-up. But life can certainly be hard working outside a start-up as well. I ask O’Connor if he ever yearns for a simpler life, without all the stress of bootstrapping a promising company in this manic city – perhaps a country house with a pool and a Labrador?
“What’s living? Is living saying goodbye to your wife or partner or parents in the morning, going to your desk, doing what you’re told, going to lunch from 1:00 to 2:00, leaving at 5:30 and going home? Some people think that’s life. I think there are a lot of people out there thinking, you know, I would love to be able to go out on my own. But there is a point at which you need to really believe in yourself and be prepared to take the risk.”
O’Connor emphasises each of these last words with a thump on the table between us. He’s worked for corporates, but he’s also worked for start-ups where he received no salary for more than three years. That usually changes a person, irrevocably. Priorities get altered. It’s all about the business… about FunkySexyCool.
“If you want your dog and your car and your house, great. But you’ve got to give up something for that. Now, I love being an entrepreneur. I love it. This is all about risk. FunkySexyCool has a big opportunity, but we’re not secure like a corporate. People think the corporate environment is secure. Thousands of people worked for Enron and they walked in one day and the thing closed. BAM. It not only closed, they lost everything. They lost their 401Ks, their futures, everything.”
O’Connor leads me down the hall and introduces me to Peter Bewsher, the technologist behind FSC. Bewsher is immersed in a phone conversation with someone back in Australia, helping to migrate Hutchison 3 over to the FSC system. We leave him to it. I bid O’Connor goodbye and catch the lift down with Sasha Israel, an effervescent 22-year-old New Yorker employed to help market FSC. She’s on her way to her second job – pulling beers at a bar in the East Village.
I slip away into the Manhattan night with O’Connor’s final words running through my head:
“You’ve just got to do what you want to do. It’s not about doing courses. Just do what you want to do. You want to go out and start something? Do it. You’re going to lose all your money? So what? If you are that sort of person, if you believe in it, you’ll make it.”
Paul Ryan is Editor of Anthill Magazine. @pauldryan