Why we invested in Zong

Posted by on June 24, 2011 @ 2:21 pm

Zong SA is a mobile payments business.  Originally Swiss, Zong (previously called Echovox) is led by David Marcus, its founder and CEO.  He is now based in Menlo Park with the bulk of the team; European operations are in Geneva, with sales offices in France and Germany.  We invested in the company just over 4 years ago, when it had a fast-growing mobile media business and had launched a web service called SMSConnect, bridging the worlds of Internet and Mobile. This service evolved into Zong.

Our investment thesis was driven by three key points:

  • Alignment with Advent’s Tech investment themes: being a small team, we can’t be everywhere and need to be focused. We like to define key investment themes for our funds, articulating what we believe in.  We proactively developed a relationship with David Marcus quite early, in 2004, as we believed he was building a business that aligned with a number of our key themes: 1) The convergence of media and IT/telecom (media businesses becoming digital and being increasingly accessed on computers and mobile); 2) The need to find new monetization models for digital content (the company has an amazing know-how on how to monetize traditional media using mobile and they could apply it to digital media, a fast growing opportunity); 3) Mobile as a “platform”, leveraging the fact that nearly everyone has a mobile in their pocket, with a billing relationship in place and a high degree of usage. We believed David and his team were able to bridge the worlds of Web and Mobile which were, at the time before smart phones, two separate universes. Their first web service did exactly this, delivering a pretty complex mobile service through a simple web interface to anyone in the world. This was only possible due to the  mix of outstanding Web and Mobile talent in the company.
  • Backing a great entrepreneur and team: We love “founder-led” businesses and we endeavour to build real partnerships with the founders and the teams we work with. When we met David Marcus he had a big vision, aiming to build massive applications on top of the company’s international mobile infrastructure. He started the company in 2000, initially as an SMS aggregator, having previously build and sold a telecoms business in Europe. At that point, he hadn’t quite cracked a scalable and differentiated model, but the Advent team liked David, a lot. We developed a close dialogue over several years, got to know each other and in 2007, as the business started to scale, we felt the time was right to invest. We liked the fact that David had built the business very capital efficiently with only $5m of investment before us. In pitching to David, we highlighted our expertise in Web, Mobile and building Growth-stage businesses.  In addition, our network would complement that of the team and existing investors.   We subsequently partnered with the company with a new $7.5m investment in February 2007.
  • A balanced Growth Equity deal, perfect for our Fund: At the time of our investment, the company had built a significant mobile media business helping traditional media companies monetize their audiences with mobile, and was just starting to address the digital media and Internet mobile monetization opportunity. We liked the fact that the same infrastructure, talent and technology could address two different opportunities.  The traditional business, including all its mobile infrastructure and know-how, gave us downside protection, while the digital opportunity could provide massive upside.  Both had a lot of potential to grow and could attract a wide range of acquirers.

This original strategy evolved as we split the businesses into two separate and focused entities creating two pure-play businesses, in mobile payments (Zong) and mobile media (Echovox). Zong took the bulk of the team, network, technology, IP, digital media client base and global reach that David and his team had built over 10 years in the US and Europe; and Echovox focused on the applications co-marketed with their traditional media clients, with a sizable, profitable business focused on Europe.

Looking back, the investment thesis has proven correct so far.  We have an investment that played our themes very well, led by an exceptional team and Founder (tested in both good and tough times!), and well positioned to be eventually a very successful investment.  We now find ourselves with two companies in our portfolio, each with a very clear strategy now that their respective successes have put them on different paths, a natural evolution in line with our initial investment strategy.