Basil: Hello, this is Basil Kilany with TechSparks. I have with me Maha Ibrahim from Canaan Partners. If you don`t mind, we`ll go on straight to the questions. You joined Canaan Partners in March of 2000. How did the transition into the investment world come about?
Maha: I was working at the time for Qwest Communications, which was a large telecommunications company in Denver, Colorado. At the time, I was doing business development for them, working with startups in Silicon Valley to develop content for the bandwidth that we were investing in as well as find networking equipment companies to help make the bandwidth that we were installing much faster and much more efficient.
And in so doing, I made the transition to venture because I`d been working so much with startups. When I joined, the market was not good in the venture industry, and I think it`s gone through its peaks and valleys since then but it`s been, overall, a great experience.
Basil: You chose a very challenging time ...
Maha: I did. I did.
Basil: ... in 2000.
Maha: I did and it was challenging for about three more years after that, and then the financial crisis of 2008-2009 came about. So, it`s been a very volatile ten years.
Basil: I bet. I bet. So, you`re a known person for somebody who would spot technology trends early. What trends do you see emerging now?
Maha: There`s so much going on in the mobile space globally right now with the introduction of Android into the marketplace and, in addition to that, what Amazon is doing with their Kindle Fire, from the perspective of Android tablets. There`s just been this kind of watershed moment where you`re really seeing a real foil to Apple or, I should say, a second provider to Apple.
Apple has really owned the day for years with respect to their smartphone penetration and the apps that are on the phone, as well as the retail environment. Now having Android come up, it enables a whole new set of viral apps to come to market with a huge audience. I think it`s been said that over a billion new Android phones will be lit up in the next eight to nine months. In my opinion, that represents an enormous market globally.
Basil: That`s true. The challenge, I think, with the Android now is the monetization on the apps. I`ve talked to a lot of people and they say although the penetration is higher on the Android side, but the monetization is much more challenging.
Maha: I think if you look at Facebook in its early days, the applications that have been launched when Facebook just opened up their API`s were very similar, right? It was throwing sheep against a wall. It was very, very quick, light, not very sticky applications. I think in the next several quarters, you`re going to see a whole new set of sophisticated applications on Android, whether it`s in the games environment or whether it`s in enterprise apps environment. It`s, to me, a no-brainer and those will monetize increasingly better as the Android community becomes a lot richer.
Basil: So, going to specifics on those, you mentioned global trends and whatnot, are you following any hot startups within those trends?
Maha: Yes. We`re looking at a few security companies, so ways of making the Android devices more enterprise-hardened. We`re certainly looking at hardware appendages to the Android devices. The payment space is still very, very ripe. There`s no reason, in my mind, that Android or iOS/Apple or Facebook should be taking 30% of whatever transacts on their platform.
They should be treated just like any other payment processor, which is typically 2-5% and if there`s a way of circumventing them or unseating them from this kind of monopolistic foothold that they have on the payment sector, I think that will open up a whole new wave of commerce within those environments, e-commerce, physical good transactions as opposed to virtual.
Basil: You mentioned those companies, and I think one of the things that you follow are companies with a big global potential. What markets do you think, globally, look promising right now?
Maha: We have invested heavily in India. India and China are pretty obvious simply because they have enormous populations that are creating wealth seemingly overnight. So, to me, those areas are given and we`ll continue to invest in India. We don`t have an office in China, but certainly if we did, we would be investing heavily there. Both geographies have their drawbacks. They`re not coming from sophisticated regulatory environments like we have. Much of their regulations are very ad hoc and somewhat provincial and old that can restrain growth.
For instance, in India there`s a restriction on foreign-owned retail establishments, and that constrains a lot of what can be imported and sold into the Indian market. So, having said all of that, we`ll be investing heavily there. We think that Latin America is next and upcoming, and I think we`ll place a few bets there. We won`t open an office though. It`s just too much for one firm to do.
Basil: Sure. OK. So, the Arab world, I know you don`t do much in that space and geography. What if you have a big potential from a startup that`s in the Arab world that`s approaching you? Would you consider that? And if so, what criteria are you looking for?
Maha: Absolutely. I would treat them similar to any other startup that I would see in any other geography, and I`ll take India and China and put them to the side because the bulk of those companies are focused on selling into their own market because they both have a billion plus population.
In the Middle East, you don`t have that population growth, nor do you have that absolute population numbers. So, I would be hesitant to invest in a company that was just looking at the Middle East market. I think that that is a fine market. There are probably many companies to be built there, but from an Internet perspective, from a consumer perspective, you just don`t have the critical mass, in my opinion, to amass a huge scale business if you`re just focused in the Middle East. I would look to invest there if the idea was to go globally with the audience.
Basil: Sure. Moving onto gaming now, we know that you have a focus into social gaming.
Maha: My favorite topic.
Basil: Tell us about the history of your experience with social gaming going back to PicksPal. How did your investment come about? What drove you to invest in that company?
Maha: There`s a funny story to this which has nothing to do with investments, and then there`s the company itself. I met the entrepreneur because we almost were in a plane crash together and got to know him very well because of that. The PicksPal founder, Tom Jeff Smith, had a very deep background in sports. He was the chief-marketing officer at CBS Sportsline. He knew fantasy sports very, very well.
So, he came to me with this notion of building a way for people who were very addicted to sports to be involved with sports contests without betting. There was no betting involved in the site. It was more just a wisdom of the crowds or question and answer contest. That morphed into a Facebook application over time because Facebook had just opened up their APIs, and it grew and grew and grew until Liberty Media ended up buying them.
At the time then, I started investing in a company called Watercooler which was building sports and television fan-based communities within Facebook. We have now something like 40 million registered users within Facebook in the matter of a year. We monetized them through fantasy sports, games, but it wasn`t until they had the notion of becoming a more immersive hardcore social gaming company that I really got involved in social games. That company eventually became what is now Kabam, which is now a very large social gaming company.
Basil: Very interesting. Going to another example, we understand that you are the lead investor in Kabam, the largest developer of massively multiplayer social games and also InhaleDigital, the first social retail site for online games. What`s so special about them at the time of the investment and how did they emerge to where they are right now?
Maha: Yeah. Both were seed investments out of this office, so I believe really strongly that, as an investor, a lot of my assistance in value is in the early stages of companies, and once the company`s [inaudible 10:23], you can get a whole set of other advisors along side the company to help you to navigate, whether it`s a public offering or sale, etc., which I still assist with. But both companies were started in this office. Both were started by entrepreneurs that I inherently knew from before, I trusted, and I knew that these folks would, when faced with kind of a critical decision about their business, have no problem really thinking hard about pivoting or course-correcting and that`s what both companies did.
Kabam, as I mentioned, started off as a company called Watercooler which was a large, fan-based community of sports and television enthusiasts. We morphed that within two months to be a social gaming company and 24 months later, it is now the second largest stand-alone social gaming company and growing like a weed. It`s been incredible.
InhaleDigital is building games on top of Android understanding, as I mentioned, that you have a billion people who are going to be lit up on Android devices within the next nine months, putting games into the marketplace whether it`s casino-based games like bingo or slots or whether it`s more immersive, Kabam-like games. There`s a position and a place for that in the marketplace that has not yet evolved because the Android community and audience just hasn`t evolved yet but we believe in it.
Basil: So, where do you see the future of social games and MMOs? Where are they headed?
Maha: They`re not on Facebook, that`s for sure. Facebook has made life difficult for social gaming companies who don`t have a foothold already on Facebook to start. It`s much more expensive to start a social gaming company and grow a social gaming company within Facebook than it was two, three years ago when Kabam and Inhale got started. So, I don`t look there anymore.
I think that there are other platforms, whether it`s international game publishers like in China or India or Korea or Japan or Brazil or Europe or the Middle East, or it`s mobile. I don`t really think of Facebook as being the go to first platform anymore, and I failed to mention Google and Google+ and Chrome.
Basil: Right. So, going into the business side now, what do you think is a working business model? Do you think a freemium is the way to go?
Maha: Yes. Yes. And that`s been proven time and time again. It started out with Tencent in China and then Chanda followed them up shortly thereafter. I think that it is the best way of monetizing a user base and keeping the user base large and fertile when at the same time, the people who want to pay can pay and the people who want to play for free can absolutely do that.
So, the audience expands when you set a freemium model, and you actually can increase the average price point of a paying user because that paying user might not want to spend $10. They might have wanted to spend $50 or $60, but a subscription model just inherently caps them at a certain amount but a freemium model gives much more flexibility to the user base. I do think that`s the wave of the future and it`s here to stay.
Basil: So, I`m improvising now and I hope you`re OK with that. In terms of those games, any recent games that you`ve been also following that are sort of crazy ideas or unconventional things or whatnot?
Maha: Yes. I have been and there`s a lot of them out there right now, again, irrespective of platform, whether it`s Facebook or mobile or otherwise. There`s a lot of very, very interesting games out there. There are kids-based games that I think are fascinating because kids just are drawn to the tablet or these type of devices that are not the PC. When they get on there, their eyes light up and it`s very, very sticky.
It`s an amazing learning opportunity for them so creating games that hook a child in, yet are educational at the same time. I think it`s a very noisy space right now because there`s a lot of people who realize what I`m saying, but at the same time it`s an incredible opportunity. The way that my children, who are four and five, learn from the iPad . . .
Basil: They`re glued to it.
Maha: Yeah, it`s completely different from when I was a child and I had my little Atari.
Basil: Oh, yeah. I remember I actually used to have the tape player that played the…it`s takes 45 minutes to load up and then you have a problem with it. I miss those old days.
Maha: Yeah, yeah, yeah. I remember when I was six playing on Dungeons and Dragons. I had an Intellivision, not an Atari, and I used to play Dungeons and Dragons and poker and all this stuff, and it was actually a great learning tool for me.
Basil: True.
Maha: But having them have such multimedia at their fingertips is unbelievable. So, I`m very excited about that.
Basil: So, again, I`m improvising on this. In terms of those games, let`s say I`m a developer and again, I`m an entrepreneur. I`m bootstrapped. I don`t have much money to start a game, and I`m trying to choose the right platform to publish my game. It`s an online game or it`s a mobile game or it`s a, well a tablet is mobile. It`s quite similar. What would be the first choice for you?
Maha: I`ve been thinking a lot about this because I have companies on a daily basis, gaming companies because of our investment in Kabam and Inhale, who come into me with these great games. The problem is that it`s not any more about the game quality. It`s about the number of users you can bring to the game, and then it`s about game quality. That is, there are many games that are very, very good that people don`t ever see because they don`t have the marketing to really expand the audience reach. Those will be acquired by the Kabams the same as the Activisions, the EAs. It`s just incredibly hard now to start a game company from scratch.
So, I would say, make sure that you have the publishing relationships in place, the people who can blanket the earth with your game, and there are many games publishers out there, globally, who can help you, and you might be giving up some bit of control of the user base. You might be giving up some more points of gross margin than you otherwise would have, but it gets your game out there into the marketplace and that, frankly, is the biggest reward and that will help you generate business, revenue and the next game and the next game and the next game after that. So it`s about reach and then game quality.
Basil: Do you think that`s the case for Angry Birds? I think there is a secret sauce behind that game.
Maha: There are a few complete outliers to that. Angry Birds is one of them. Angry Birds was there at the beginning of the tablet launch, near the beginning of the iPhone launch. And that`s why I`m saying why Android is such an interesting place right now because if you can get there very, very early, you can command the eyeballs so much easier because there`s just less competition out there in the marketplace and that`s what Angry Birds did. If Angry Birds started today, I don`t know that they`d be able to rise above the noise.
Basil: So, looking at the entire investments of the ones that you were involved in, if you were to mention just, actually, call up one, what would be the one that you are actually the most proud of?
Maha: I am most proud, at this point, of Kabam simply because it was started in this office by an associate in this office. He used to work here. He worked here for three years before he started his company, and there were two pivots and changes. The CEO there is amazing. He`s run the company so well and seeing him grow a company from zero to what is now 500 people and an amazing amount of revenue, it`s great.
Basil: So, you won so many rewards, including the Silicon Valley Business Journal 40 under 40. You`re a regular on Bloomberg TV and I usually close by this question. What sort of pointers do you want to give to our audience today, entrepreneurs who go crazy and do something radical and disrupt the market?
Maha: Sure. Entrepreneurs have something that I don`t, which is this never-say-die attitude. They have ideas and notions that keep them going even in the face of so much criticism and so many people saying, "You should do this. You should do this. You should do this." So, in some ways, I kind of don`t feel like I`m in a place to give advice to entrepreneurs even though that`s what I do for a job, because they have that DNA that I don`t have that I think is absolutely magical.
One thing that I will say as a general rule is: I see a lot of entrepreneurs who come in who want to keep things quiet for awhile. I don`t believe in that approach. It`s rare that you have an idea that`s so unique that you would shock people if you unveiled it. You need to get feedback from as many people as possible about the idea. It will help shape and form and pivot your company early on in ways that you haven`t thought about and you`re not giving away your secret. Somebody else has thought about it. You`re just bringing in people to help you. It`s always like, just be promotional. Be open to feedback, get the feedback. Don`t stay stealth.
Basil: I know that was supposed to be the last question, but since you`re in the VC world, I know a lot of people, they prefer the writing of references when it comes to recommending someone in a startup and whatnot. Let`s say I`m an entrepreneur with a good idea and a good startup and I want to approach you. I know you get a lot of inquiries and emails and whatnot. How can I get to you without knowing someone?
Maha: That`s really hard. It`s usually by me meeting you at a conference or me seeing you present on pitch day and I would approach you. It`s very difficult for an entrepreneur to approach me directly without some sort of contact but that`s not to say it won`t happen. I mean, I get inbound emails all the time and I look at all of them.
Basil: How many emails do you get a day?
Maha: A lot. Let`s just put it that way. I mean, if I see three companies a day, you can imagine how many emails that I`m getting. I read them all but most of them are not targeting large enough market opportunities for me to say, "I want to absolutely invest there." As a guideline, we do, on average, investment professional, one and half deals per investment professional per year. So you can do the math. It`s less than 1% of deals that I see I actually do.
Basil: Well, in closing, thank you again very much for being with us today, and we appreciate the opportunity to get your valuable input to our audience today.
Maha: Thank you!
Basil: Thank you.
About the Guest:
Maha Ibrahim invests in innovative cloud and digital media companies with the potential to become global market leaders. Maha is known in the venture industry for her ability to spot technology trends early, foster growth at her portfolio companies through hands-on operational guidance, and achieve profitable exits for entrepreneurs and investors.
Maha joined Canaan’s Menlo Park office in March 2000. She was one of the first investors to recognize the huge potential of social gaming. Maha led Canaan Partners’ early investment in social games pioneer PicksPal (acquired by Liberty Media) and is now a lead investor in Kabam, the world’s largest developer of massively multiplayer social games and InhaleDigital, the first social retail site for online games. Maha also invests in enterprise technology companies leveraging cloud computing to improve business outcomes.
Maha holds a B.A. in Economics and an M.A. in Organizational Behavior from Stanford University and a Ph.D. in Economics from Massachusetts Institute of Technology MIT and now serves as a General Partner at Canaan Partners.
Maha Ibrahim invests in innovative cloud and digital media companies with the potential to become global market leaders. Maha is known in the venture industry for her ability to spot technology trends early.
