The next big thing from Silicon Valley

Silicon Valley is a fabled land where everybody is young, bright, good-looking and rich. Well, in my experience this is not quite true. My brother-in-law, who fails to match this description, lives there for starters! 

But what is true is that the sun shines around the clock, the district is smart in a low-key way, and anybody who wants to earn the respect of the Valley’s dwellers must start their own business.

Never mind if you succeed or fail. The important thing is that you don’t get complacent and sit back admiring the Mark Zuckerbergs, Larry Ellisons and Sergei Brins. Instead you must try, at least once, to emulate them.

Perhaps this is the reason Silicon Valley is a hive not only of technological creation but also of new business creation. Nothing teaches you more about business than trying to run one yourself.

And what Silicon Valley has succeeded in creating is an ecosystem of technological expertise, new business and finance. Those who have made it like to recycle their fortunes into new start-ups. They know the movers and shakers and they understand the business concepts.

Silicon Valley is where the ‘expertise’ lies

It is hard for outsiders to break into this magic circle, but one man who has is Alexander Selegenev. This former investment banker is executive director of AIM-listed TMT Iinvestments (TMT), an investment company set up in 2010 to help Russians who had made good money in their homeland to invest it in the technology, media and telecommunications sector abroad.

‘Abroad’ basically means Silicon Valley because that, Selegenev told me last week, is where the expertise lies. It is remarkable to see one massive global industry, that could be situated anywhere in the world, dominated by a small region south of San Francisco. But that is the case with this industry and even with a few million dollars to splash around Selegenev told me that he “had to fight for an audience”.

But he has got his foot in the door, and TMT Investments has now invested some $18m across 22 investments and would like to raise more capital to become an even bigger player.

For that to happen it needs to show that it has spent its money wisely and that is tricky. So far, it has realised one small profit but otherwise, as is the rule with investments in private companies, TMT can only value its stakes in line with historic transactions. So, while TMT’s share price of $1.68 stands at a considerable premium to its latest $1 book value, that fails to take into account any uplift in the value of its investee companies.

There has never been an industry in which value can be created as swiftly as it can with internet start-ups, and there may well be some gems amongst TMT’s list.

 

Five new exciting internet start-ups

I asked Selegenev which these might be, and he named five. These are:

• www.depositphotos.com

This neat idea allows anybody to contribute their photos to a website and put them on sale. Illustrators and picture editors can download royalty-free images and anybody with a camera can become a contributor and make some money. During its first year, more than three million images were downloaded. TMT has a 30% stake in this, valued at $3m.

• www.wanelo.com

This site allows you to bookmark items that you like and then buy them via direct links from the site. TMT paid $350,000 for a 6.53% stake but a recent $5-$10m fund raising was rumoured to put a value on the business north of $100m.

• www.virool.com

Over two million videos are uploaded to the web every day, but most are hardly seen. Virool has developed a self-service platform that allows video creators to distribute videos that are over 30 seconds long to target audiences across a network of online publishers, blogs, social games and mobile apps. TMT has a $400,000 investment via a convertible note.

• www.wrike.com

Wrike is an online project management platform that allows multifunctional teams to collaborate and get things done successfully in one place. TMT has backed this one to the tune of $1m, also via a convertible.

• www.backblaze.com

Backblaze offers a service that automatically and continuously backs up all data from Mac- or Windows-enabled computers, over the internet, to Backblaze’s data centre. Users pay $5 per month for unlimited storage. TMT has 9.9% of the equity in return for a $2.5m investment.
 
With several more interesting stakes, TMT has several shots on goal in a business notable for many failures and the  occasional spectacular successes. Its directors are paid in shares rather than cash, so they have every incentive to succeed. Above all though, TMT is a vehicle that gives UK investors a ticket into the magic world of Silicon Valley. That alone makes it one to watch.

• This article is taken from Tom Bulford’s free twice-weekly small-cap investment email The Penny Sleuth. Sign up to The Penny Sleuth here.

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