Question /n London
Business
School
John Bates
Tim Rea
London Business School REF: LBS-CS-17-025
Date: 2017
Decision time at WT Mobile
Abstract
As Tim Rea, CEO of WT Mobile, sat down with James and Mark Rodell, founders of the
business, he knew they had some important decisions to make. Rea and his partners were
in the process of funding their mobile communications company. Over previous few
months, they had presented the business to an array of professional and Angel investors.
Their response had taken them by surprise: all the investors were keen to invest. Now they
had to make some decisions. Which investors would be best for the business? How many
shares should they allocate to different investors? How much money should they raise?
To answer these questions they would need to take into account several different, and
related considerations: the future profile and growth expectations of the business; the likely
value of the company; the contribution that each of the investors would be able to make to
the business, now and in the future; and of course, the investors' own needs. And
overshadowing the fundraising was the attitude of the Rodell's; they were, Rea was
increasingly aware, leaning towards a smaller investment round. Their biggest concern
seemed to be dilution, as they did not want their shareholding to fall below 50%.
Rea's own instinct was to take whatever money was on the table, and he felt that they
would need a much more substantial funding round sooner rather than later. One way or
another, Rea and his partners would need to balance these diverse perspectives and
needs and make the best decision for the company.
The Case was prepared by Tim Rea with the assistance of Fergal Byrne under the direction of John Bates, Adjunct
Professor of Strategy and Entrepreneurship at London Business School. This case has been prepared as the basis for class
discussion rather than to illustrate either the effective or ineffective handling of an administrative situation.
Copyright © 2017 London Business School. All rights reserved. No part of this case study may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means electronic, photocopying, recording or otherwise without written
permission of London Business school. London Business School
Riches in Sunderland?
When Tim Rea first travelled with Alex Gordon to Sunderland to meet some local
entrepreneurs in April 2006 he felt that he might be on a wild goose chase. Sunderland
was not exactly known as a technology hotspot and it did not have a strong culture of
entrepreneurship.
Tim had agreed to come on the request of Alex, a colleague who was part of ETS
Ventures, a new, £30m VC co-investment fund supported by government and EU funds.
Alex had worked with Tim on several projects in the past and was hoping that Tim could
provide some validation and perhaps some support for one or more local companies.
Alex was quite excited by a couple of recent propositions and was particularly keen to
introduce Tim to the Rodells, a father/son team that had developed a range of mobile
communication applications.
"I'm sure you will find this interesting," Alex had told him as they arrived at the
Rodell's house. “These guys live in the home of the future and everything is
controlled via mobile phone. There's got to be something here to build a business
around..."
If anyone would be able to give Alex advice on the viability of the project it was Rea. A
former research technologist, MBA, and experienced technology entrepreneur, Rea had
spent many years working in the mobile industry and more recently financing technology
companies working with leading VC companies globally. Tim's mobile industry knowledge
and contacts were second to none.
As they travelled up Tim tried to dampen Alex's enthusiasm for the technical prowess of
the team they were heading to meet.
"My general view is that it is difficult to differentiate a mobile proposition on the
basis of technology when the really difficult issues are associated with delivery and
general commercial execution."
As they approached the Rodell's home, the gates to the drive opened automatically and
James Rodell came out to greet them. He was in his late 40's and, as he escorted Tim and
Alex into the sitting room, he explained his background:
"My background is in mechanical engineering and I have been working at
Sunderland University for quite a few years, at the same time as building up a
niche consulting business over 10 years measuring stress in difficult mechanical
environments. My clients include BMW, Rolls Royce, Siemens..."
James had recently resigned from the university to concentrate on developing the
business further with Mark his son. Mark, who was 21, was nearing the conclusion of his
electronic and electrical engineering degree course at Sunderland University. James was
keen to establish his son's credentials:
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"Mark became the technical director of our business at the age of eight and very
quickly developed a reputation for innovative software developments. For example,
all of the UK frigates and submarines are running software that was developed by
Mark when he was 14. He also won many awards including first prize for the Young
Electronics Designer Awards for five consecutive years, Young Engineer of the
Year award and several others..."
Mark was quieter about his accomplishments, but picked up the story to explain some of
their recent activities:
"My father's business requires an ability to collect and analyse data and many of
the installations are abroad, so we started developing mobile applications that
would allow us to retrieve data. This then led us to develop quite a few other things
that make use of mobile data capabilities."
James presented several projects, including an alarm system that Mark had recently
developed. An add-on to existing fire alarm systems, it allowed people to use their mobile
phones like walkie-talkies in order to deal with the alarm situation.
Although Tim felt the actual alarm application was not extraordinary, he was interested in
the way the messaging system worked with different mobile operating operators. On the
way back from the meeting, he gave his view:
"These guys are definitely strong on the technical side and appear to have a decent
understanding of mobile technology. My feeling is that they could potentially
develop an operator-independent messaging platform, but I'll have to think it
through."
Market Context
Tim's project portfolio was split between VC-related and corporate work. On the corporate
side, Tim was an advisor to an Asian mobile supplier of equipment and handsets and also
regularly worked with mobile operators. On the VC side, Tim had spent a couple of years
doing ad hoc work for several firms, but recently begun working exclusively as a venture
partner with a leading global fund, STech Ventures. This enabled him to be involved in the
full lifecycle of sourcing, executing and managing investments and maintain involvement in
other projects.
Tim was particularly interested in Instant Messaging (IM) and, to a lesser degree, Push-to-
Talk systems (which provided walkie-talkie like function for mobile phones). Although these
services seemed a natural fit for mobile handsets, there were no decent offerings by
mobile operators. Tim felt was that this was because mobile operators' wanted to preserve
SMS revenues. But he believed that the recent trend for mobile operators to reduce data
charges and open their networks to third party service providers could create an
opportunity for an independent service provider to emerge.
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"The mobile messaging market is so massive despite the fact that SMS is such a
poor medium. If WT Mobile can define a proposition that is easily accessible by the
mass market, this could be interesting," he later explained to Alex.
Rea's interest piqued, he decided he needed to get a better understanding of the status of
the emerging push-to-talk services that were proving popular in the US, but were basically
non-existent elsewhere. Details of the market, general context and some data regarding
mobile messaging and IM are included in Exhibit 1; details of recent comments regarding
the Push-to-Talk market are outlined in Exhibit 2.
Tim also called a close contact within Orange to learn more about their recent attempts to
launch a push-to-talk service in the UK. The project, he discovered, had been effectively
abandoned despite some reasonable marketing efforts. Tim felt this was not related to the
proposition itself, but to the way it was packaged by Orange. In particular, because it was
based on one particular handset, required a special tariff and the only worked between
users of that handset that have subscribed to the right tariff.
Tim's thinking on the mobile messaging service was particularly influenced by the recent
success of Skype, where he felt some were some clear parallels.
Defining the Proposition
Alex arranged for Tim to be paid for a few days work with Mark and James to advise them
on how to establish a business that could attract funding. At a follow-up meeting a few
days later, Tim outlined his ideas to Alex to get some indication as to whether or not Alex
would invest in such a proposition.
As a starting point, Tim proposed creating a messaging service that would enable groups
of mobile users to communicate by voice or text on a many-to-many basis in real time via
an IM-like interface across all networks. Tim proposed that a client application could be
available as a free download and customers would get a basic service using the standard
client for free (i.e. user only pays the associated data charges to the mobile operator).
Beyond a defined level, users would pay for specific events, but the bulk of revenues were
expected to come from users paying a modest subscription to use a premium client that
could offer a number of features that are necessary for active users.
Following several email exchanges with Mark, Tim proposed that the key characteristics of
the proposed service would be as follows:
A user can define a new channel and invite contacts to join that channel. Once
connected, all members of a channel remain connected and any member of the
group can speak to all of the other members in real time by pressing a button (e.g.
the menu key) and speaking into the microphone.
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A user may be connected to the service via a compatible mobile device on any
operator network or via an internet connected PC. The service will provide an
effective bridge between PC connected users and mobile users.
The application supports text-based messages in cases where text is preferred.
Users will be able to send pictures to all the members of a particular channel on a
one-to-many basis along with a voice message.
Group interaction is facilitated by a server-side system which collects input, holds
messages in the correct order and re-transmits the messages in the correct order
to prevent the over-talking that would be encountered in a normal simplex radio
system.
Users can define channels on the basis of proximity so that, for example, a user
can pre-define a channel to consist of all contacts that are within a certain range.
This function is enabled by a positioning function that is contained within our
application.
Users can elect to have discussions on their subscribed channels held on the
central server for subsequent play-back.
The application will interface to the most popular IM systems so that users of those
existing IM systems will be able to work with their existing buddy lists and can use
our client to communicate with users that connected via the dedicated
MSN/AOL/Yahoo clients. This approach helps to get around the initial lack of a
community using our client only.
Users will be able to manage multiple channels so that it is possible to be
connected to several channels simultaneously.
A graphical representation of the service is outlined in the diagram below.
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