Sequoia History to Invest in "Fun and Easy Ways to Communicate"

After several years off of blogging, I’ve decided to start again.

The success of Whatsapp did not amaze me so much as did Sequoia’s ability to have chosen the right messaging application at exactly the right time.  As I look back over a 10- year period, the trends that allowed for a massively successful company in this space are very clear.  I can also only assume the Sequoia must have a very methodical way and formula – per se – to track these trends, find the right company and invest at the right time.  Below is my historical account of emergent trends of messaging applications as well as a few tidbits about Sequoia.

When I was working at GE in Hong Kong in 2001-3, I looked at many different emerging consumer mobile companies in Asia.  Several companies offered consumers fun ways to send text messages: in China, there was Linktone and KongZhong (invested by one of the first Sequoia China partners Fan Zhang) both which went public on Nasdaq; in Japan there was Cybird and then the eventual emergence of DeNA; and then there was a US based mobile company, Funmobility where I worked upon returning back to the US in 2006.  At the time, I had a big passion for consumer mobile products and I still do but I became to old to understand the consumer so i went to payments :).

Many of these companies had unique ways to send message people using graphical images and fun pictures.  At that time in China, Linktone was using 128 bytes formatted into a cool graphics of pets - this one application drove the company to 10's of millions of users and a successful IPO.  The consumer adoption for these services was apparent when the distribution via carriers was achieved. 

Another trend in China at the time was the use of MSN messenger to communicate for work; it seemed that almost all of our day to day interaction occurred via MSN messenger.  Almost everyone in China used MSN to discuss business matters: it was fast, efficient, informal, and you didn’t have to speak to someone J.   These characteristics of communication perfectly fit the Chinese culture and business environment.

After returning to the US and after working for Mitsui in 2007, I had a short stint advising my friend’s company, Heysan.  Heysan was a converged IM (Yahoo, MSN, AOL) on mobile devices, pre-iphone.  While spending time with them, the trends were apparent, the engagement on the mobile web site was several hours per day. Once Heysan launched the emoticons, the ARPU($) was almost in the teens.  The math worked - even at that time. Unfortunately we did not continue with the business and sold it right at the infancy of the launch of the iPhone.  However, during the sales process we discussed a potential exit with Meebo which was a similar PC messaging business. At that time, they wanted to invest massively in mobile which they didn’t. At the end, in typical Sequoia fashion they sold for a profit but did not build anything meaningful.  Again, Sequoia would have seen the emerging trend on mobile….

After consulting with Heysan, I joined Funmobility. From the time I met the company in 2002, they  had grown to 100+ people, very profitable, and their mobile consumers services - which consisted of a graphics communities, a Tinder type application, and music communities - were highly adopted across all the major carriers and consumers in the US.  In most of the Funmobility communities, users would message each other selfie pictures, music, and graphics made by Funmobility.  The amount of messages sent daily far surpassed the number of users we had on the platform.  During the high growth time, Funmobility considered raising more capital.  Mike Moritz and Roelof from Sequoia visited once and in typical Sequoia manner of saying very little only commented, "fun and easy ways to communicate are a great business model."

Once the iPhone came out, the business quickly began to decline and we were unable to learn from the trends on feature phones and apply them to smartphones.

Reflecting on these experiences to almost 10 years ago, the early indicators of the messaging trends were completely obvious. However, it took until now for the distribution and encumbrances of carrier over the top (OTT) services to eventuate. 

Once carrier distribution was overcome by Apple and Google, messaging apps like Wechat, Line, Kakao, Viber and Whatsapp took off, and as expected this initially occurred in Asia.   WeChat (China), Line (Japan), and Kakao (Korea) are highly adopted and users frequently use the emojis and fun messaging components.  While Whatsapp has eschewed the ‘funness’, it has the highest utility.  Most users in Asia use both a Line/Wechat/Kakao application and Whatsapp.  Whatsapp, by far, is the most widely used of the applications.

After reading Sequoia Capital's article on the history of Whatsapp, one line jumped out at me, "...It’s easy to take this novel model for granted. When we first partnered with WhatsApp in January 2011, it had more than a dozen direct competitors, and all were supported by advertising. (In Botswana alone there were 16 social messaging apps)."  I can only think that Sequoia must have a very methodical way that they historically and globally track all of these trends, across their portfolios in India and China as well.  Then at just the right time, they are able to spot the leader and invest.

Undoubtedly Sequoia has the ability to see the best opportunities in the market but that doesn’t mean they have to invest. Surely all of these experiences led them to a very significant decision to scope out an investment in this space and they clearly picked the right one.