The FON Story with Martin Varsavsky

Thank you. Thank you very much. Yeah, no, I, I wanted to speak today about. Yes. How difficult it is to be an entrepreneur because I feel many times people introduce, introduce me and they said, okay. He sold, I don't know, four companies for over half a billion or two for a billion. And they just make it sound like I woke up, I was born and there I was selling companies for a billion. Right. And I just wanted to talk about all the things that go wrong in the process and how difficult it is to do these and how each one of these companies is sort of the lucky sperm who made it. Okay. And actually all of you is the lucky sperm who made it. You're here, the lucky ovule too. But what I'm trying to say, there's a lot of obvious. I'm sperm who never made it. Okay. And there's a lot of things that go on in the company that is almost like a success, as if it were a very slight, very, very slight ratio of right decisions over wrong decisions. A very slight, let's say batting average, but just slightly better. Because I feel many, many, many decisions we make and I make are just wrong. Okay? And so I'm going to tell the story of Phone from that angle because Phone is now the largest WI fi network in the world. And probably you go anywhere in London, you open your laptop, you see BT Phone. And we are growing tremendously, we're making more telecom deals and so on, and we're worth now close to half a billion according to some investors. So it is a success. But two years ago we were, I would say, an abysmal failure to the point where every investor I have in the company, and these are well meaning people, these are all well meaning people. And I'm talking about Google, Sequoia Index, Atomico, some of the best investors in the world who were my company looked at me in the eyes and said, martin, I think you should. I think this is not going anywhere. This company is not going anywhere. And I had to fund the company myself to make it happen. So let me talk more about that moment and sort of that situation because it is. I started fun with an idea which is you share a little WI fi at home and you roam the world for free. And I started my company, like many of you, I heard all these presentations. Many of you are in the same situation. You're trying to solve a problem for yourselves. You have a problem and then you find a solution to your own problem. I said, well, maybe other people want the same solution. And that is a very Common way for entrepreneurs to start companies. So in my case, I was just walking around Paris looking for WI fi. I was looking for WI fi myself. I wanted to connect to WI fi. I wanted a solution. By the way, connecting to WI fi here is part of the imperial college admission process, sort of. So I was struggling with that. I was struggling with lock, lock, lock, lock. Any network I found was locked. Now saying, all these people in Paris, they're not even in their homes. Why don't they share a little WI fi with me? Why don't they give me a little WI fi, you know, why is everything locked? All these networks? And then I thought, well, what could I do for them? What could I do for these Parisians, you know, who are the nicest people in the world, as you know. And so I thought, what could I do for them so they don't tell me to just fuck off, you know, and I can connect to their WI fi. So I thought, well, how about I tell them that when they come to Madrid, they connect to my WI fi? Okay? And then I thought about it. I said, this may not be such a stupid idea. What about creating a global federation of routers who share WI fi? What about creating a global family of people who share WI fi? And one of the things I did at that point, by the way, is I patented the idea. So I have a US patent on that idea. The US is the only country that's really crazy with patents. I had other ideas and inventions in the US that I didn't patent. And then, for example, I invented callback. I didn't patent it. And then people sued me on my own idea and I had to defend myself successfully. So I said, this time I'll patent it in the only crazy litigation wild country, the United States of America. So I patented it. And I got the patent recently, actually, but it turned out that it was an original idea. What is a global family of routers who share WI fi? So, of course, we didn't invent hotspots, we didn't invent WI fi sharing. But the concept of how to share WI fi, you share a little WI fi at home, you roam the world for free. We've raised 18 million euros from. We were the first European investment by Google, first European investment by Sequoia. We raised all this money and we gave away the routers for free because we said, okay, the first people who share are the ones who should get them for free because nobody will share with them, so there's a benefit. So we did that and we ran out of money giving routers away for free. And most routers ended up in people's closets. And it was just a disastrous strategy. If anything, the good thing about it is it did make us the biggest WI fi network in the world, but just because we were like the tallest midget, everyone else was a midget, and we were a little taller, okay? So we got to claim that we were the largest WI fi network in the world. Now, after doing this, we realized that people wanted WI fi, but not badly enough to actively get a phone router, pay for it, and put it in their home and roam the world for free. And I was invited by Google at a conference called Zeitgeist to debate Ian Livingstone, the head of bt, because he was like the big monopoly or former monopoly or whatever, and I was like the up and coming guy who always built telecom companies. And he was him against me. I meet him on stage and we're like, halfway through the debate. And Ian says, but I love the idea of phone. I don't see why phone is bad for my company. And we leave the conference and right after backstage, and I say, ian, you sound like a really different monopolist. You sound like you. And he wasn't, because he was losing a lot of market share, and he wasn't a monopolist. It was just my prejudice. So this phone revolution, which started against these companies and to provide WI fi everywhere, it turned out that we ended. I realized that I was about to sleep with the enemy, that I was getting in bed with the enemy. And I said, well, maybe that's the way. Okay, maybe that's the way. But the problem was all this combined with the financial crisis of 2008. So the financial crisis of 2008 made it such that nobody was investing with anybody. By the way, right now we have a serious financial crisis too, but somehow this room is getting spared. I don't know for how long. Okay? But it is interesting that there's some kind of financial desert and there's an oasis called whatever new technologies that has so far been spared of the drought. But a couple of years ago, nobody was spared. Nobody. Like, you look at the price of the shares of everybody. Well, of Apple. I mean, they were like 80, you know, so everybody was afraid. Everybody was afraid. And I realized that the only way I could make fun a success was to make it profitable. So we had to fire half of the people in the company, which was extremely painful. But I was able to get a lot of. Get jobs for many of the people at phone because they were great people. I wrote a blog post. I was very apologetic. And then to my investors, I said, look, guys, I understand you don't want to invest more money because I understand we haven't delivered, but why don't we do this? I will lend money to the company at 12%, and if we are a success, we pay the company out of cash flow and I don't dilute you. And of course, they all said, great. They love the idea. I was the first entrepreneur ever, probably in history who's done that. But I did it because I knew that if I turned this around, I would have the support of some of the best investors in the world. Right? So that's. And there's a lesson there about screwing or not screwing people or about being nice or not being nice or being an idiot or being taken advantage of or blah, blah, blah. There's a moment in which being quote, unquote generous may be self serving, you know, but being ethical may be actually a good thing. It's interesting because I thought about this a lot and I said, why don't I dilute the crap out of them and I'll keep the company for myself. I also thought about that. You know, I'm not coming here to say I'm such a nice guy. It's just that I thought about the whole thing and I said, well, I have the best investors in the world. If I dilute the crap out of them and then I make this company a success, they will hate me even more. Okay? And so I thought about it a lot and I said, I'll just lend the company money at 12%. So I lent the company money at 12%. I had to fire a lot of people. And then the amazing news for WI fi came, which was the iPhone. Okay? The iPhone really saved our ass because in a world of laptops, there weren't enough people looking for WI fi. And then the iPhone came out and it was the first bandwidth hog device. I mean, it was like the iPhone was hungry for WI fi. It was easy to find WI fi on the iPhone. And what happened is the companies that started selling the iPhone, the telecom companies that started selling the iPhone, became a great thing and a curse for them because it was destroying their networks. So WI fi, which was the enemy of 3G, became the friend of 3G, because 3G couldn't cope with the iPhone. The iPhone destroyed the network of AT&T and the network of softpunk. Our partners in Japan, who were the first ones who started giving out a phonera, a phone router for free with every iPhone. And we started selling millions of phoneras all of a sudden. Millions. And selling them, not giving them away for free. And our revenues went from like 4 million to like 40 million in a year. And they're growing now a lot this year. And I mean, our revenues are becoming more than a million dollars in revenue per employee. We have. Okay, and we're profitable already. So there we were, hanging out with a company that was giving these routers away for free and calling telecom operators by names, let's say. And then we ended up being the biggest friends of telecom operators. We ended up selling all our fourniers through the telecom operators, and we ended up selling millions of them. But moreover, the other strategy, which was, why do we need a Phonera at all? We started writing firmware for routers and reflashing routers with our firmware so the routers themselves would behave like phoneras. And we didn't even need to sell phoneras. Okay? So the turnaround was quick, thanks to the demand, thanks to the iPhone, thanks to Android too. I mean, the Androids are very similar in behavior. And that was an incredible moment for us. We made more alliances. We're working in the States. We don't have. We can't announce it yet, but we're working very hard in the States to have one of these BT type of alliances. We working in other countries. In Europe, we ended up teaming up with MTs in Russia, who's a very successful company there, with Zone in Portugal, with Belgacom in Belgium, we ended up being from a B2C company to a B2B company. That had always the same strategy, because today phone is the same thing that it was five years ago. You share a little WI fi at home and you roam the world for free. But it is the way that we implemented the strategy. The pivot was not on what we did, because a lot of companies pivot and just do something else. For example, my friend Loic Lemer, I'm a small investor in Sysmic. Sysmic completely changed what it was doing. It was a video company that became a Twitter client company. In our case, we were always the same. The patent filed in 2005 is a great patent to have now, but it is the strategy that completely changed now. When I listened to you guys and the presentation I was listening to this morning, I think that it is very important that you build companies around things that you yourselves find very useful. Because it is true that it is rare that you will find something very useful for yourselves. That is just only useful for yourselves. Going on to investments. I've done maybe 15 investments. I am not a very active angel investor mentor, as some people are in this room, like Dave here. No, but who's made that his main career. He's an investor. I am an entrepreneur, occasional mentor investor. Now, in these activities, I have been also very, very lucky. I backed my former CFO into creating an alternative company which is now, five years after its creation, has 120 million euros of EBITDA, okay? And it's worth over a billion. It's called a Olia, and it's a very large wind operator in Spain. He was my cfo. He wanted to become entrepreneur. I said, great, I'll back you. I mean, we were friends for a long time, and we were at Columbia University together. And so as an investor, I have done overall pretty well by investing in very few companies and then investing generally. For example, another company that I invested on the first round that stands very well is Tumblr, right? And when I met the guy from Tumblr, he was not a college dropout, a high school dropout, okay? But I was a blogger and he had a great blogging platform. I needed his product, okay? So many times this is about the relationship of needing, needing the product, wanting the product. I lost 35 million euros of my own money in a company called Einstein, which was one of. It is the one company that I did. Out of the six companies that failed, the other five did well, and this one failed, and I lost 35 million euros. It was one of the first cloud computing companies in Europe in the year 2000. And you would say, well, cloud computing is huge now, right? So when I was about to fail with phone, I remember the story of Einstein. I said, I lost $35 million euros in this company. I'm just. I'm going to stick with phone, okay? Because when I saw cloud computing take off two years after I lost my 35 million, it felt painful, you know, like, really painful, you know, I was like, ugh, it hurt, you know? It hurt, it hurt. It hurts. Losing money on your own convictions. When you give up your own convictions and then you lose all this money. And it happens. Because if I had invested in a cure for cancer that never worked And I lost 35 million, well, at least it never worked. People went on dying of cancer, okay? But this is not the case with cloud computing, right? So I put my 35 million euros, built this amazing hosting company for application for everything that's being used now. Just too early. It was too early. And actually the story of phone is kind of similar. It was too early. A lot of the problem we have in this room is that we think because we like things, people like things. And what happens is we like things and people like things. Five years later, okay, everybody who, anyone who likes something in this room, everyone else is probably going to like it five years later. That's what I'm learning about the things I tend to like. So this gives you sort of a good summary of what happened where I am. But I thought maybe we could make it more interactive and some questions so I can more tune to what you're working on right now. Well, yes, I'll show what happened in Japan, which was something totally spontaneous. What happened is the earthquake came, the tsunami came. And in Madrid, because we manage all the WI FI network that we have in the world, out of Madrid, we saw that we lost 80,000 hotspots in a second in Japan. And so we said, there's something really serious going on there. If so many hotspots all over, you know, near Tokyo and the north of Tokyo and so on, what's happening? So then we see on TV that there's a tsunami, right? And so an engineer of phone Joanne says, hey, this is really horrible. Why don't we just open the network for everybody in Japan to use? This is something really tragic going on. So in half an hour or an hour, we changed the way the network. We configured all the routers differently in Japan. The 900,000 routers we had. And we made it not that if you share WI fi, you could connect for free. We made it and the others pay. We made it that everyone could connect for free. And we actually, by doing that, it was a difficult and risky decision because when I made it, I knew I was violating maybe 10 agreements in one shot. I was violating the agreement of the Japanese Fonero with us, the Japanese Fonero with everyone else. My board with me, because I didn't consult with my board. I mean, giving away services for free. I was just violating a lot of potential. And I was potentially getting into legal problems. But I said, well, you know, like, WTF will do it, okay? And we did it. And it was incredible. The connections shot, we went from, like, having half a million Japanese people connect per day or people in Japan, because Japanese and people who are visiting, to having over 5 million people connect a day. And we gave the services for free for like two months or so after the. And it turned out to be a good decision. The usage went up. People were grateful, but it was something that we did because we know that in emergencies, the mobile networks fail more than the WI FI networks. And that's something that we've seen. I think you should all try to get patents, and especially in America, because that's the way the world is. I may say I hate patents, but I patent things because last time I didn't and they screwed me. Okay. Okay. But I think it's insane that Microsoft makes more money out of Android than Windows Phone. Much more money out of Android than Windows Phone. I think it's insane that Microsoft gets patent payola, we may call it, from HTC and Samsung. So Androids can be used and they get from 5 to €15. But that is the patent system. And, and the ones who are the patent. There's patent problems all over the world. There's patent problems in Europe and there's patent problems in America, but there's more patent problems in America. If it was up to me, if I had anything to do with this, I would say that patents first of all should be used. That people shouldn't be able to sit on a patent and do nothing. Kind of like land. That you shouldn't be able to have valuable land and do nothing in a world where people are starving. I think that something similar concept should be applied to patents, that people couldn't just patent things and sit on them. That's one thing. I can understand the concept that patent protection for somebody who's doing something, but the patent protection for people who do nothing is sort of like squatting the world, squatting on creativity. So patents annoy me, but because I live in a world where I have to live by the rules and I don't make the rules, we try to patent whatever we can patent and I recommend that you do the same. Yeah, any. What? Sorry. Well, it is a different type of distribution channel. The question is if the pivot was about a distribution channel and it was, it was the same idea. People love to have fun. Obviously in the uk there's millions of people who have phone. They're very happy. They just didn't want to make the extra effort of installing it themselves. Okay. But they love it that it comes with their router. So it was a change. It was the same concept. It was a change in the distribution channel.

So first of all, congratulations with the new addition to your family.

Thank you. Thank you.

So my question is a couple of you. Thank you. So a couple of years ago, I remember this was before the iPhone, you had a meeting with Steve Jobs, personal meeting with Steve Jobs related to fun. I know you shared some of your experience back then in the video, I think, or blog post. Can you share the experience with the audience again?

That's a tricky one because he's doing so poorly that. I mean, the point is, I had a very difficult meeting with Steve Jobs. I spent an hour and a half alone with him and I basically, I had been partners with Google, partners with. I'm even partners with Google and Microsoft now because I was partners because Skype was an investor in Phone. So now Microsoft is an investor in Fon.

So.

I get along with everybody. And when I met with Steve Jobs, I had the high expectations in the world. I was about to see my idol. I was like, you know, like I was turning Japanese on him. And then he like cuts me short and the first thing he says when we meet is, oh, I love fun. We're going to do fun without you. That was like the beginning of the meeting. Okay. And the meeting was a 90 minute confrontation in which twice I stood up to leave and he said, don't go. Don't take it personally. The thing is, Steve Jobs is a genius. We owe a lot to him. I've been very thankful. I've been saying this about the iPhone and all that and the iPad and so on, and I'm really sorry that his health is so bad and so. But it is true. But I've spoken to a lot of people about what happened to me when I met him and the people who have met him and dealt with him many times agreed with me that he, as genius as he is in product design and as grateful we should all be for his products and practically I should be grateful because he saved my company. But having said all these on a one to one, he's one of the toughest people in the world. I can't believe. And I'm not surprised that he, he built a company that. I mean, think about the iPhone. The iPhone came out and it wasn't selling very well at all. The first 1 million iPhones took a long time. What made the iPhone sell? That we hacked them. Right? That everyone hacked them. And then he had to understand the App Store and the apps were not the original idea of the iPhone. Nobody could say that the iPhone. What happened is people hacked them. And then Apple said, okay, well let's, let's hack them ourselves. Let's create the apps or let's. His view of the world. His view of the world. It's kind of like very different from our view of the world, but we make his world become more like the way we like it. And he certainly makes our world become more the way he likes it. Jeff Bezos is a super nice. That's smart nice. Well, Larry, Sergei, Eric, everyone else, Bill Gates. Everyone else who I ever met and dealt with is an easier person than Steve Jobs now, you could say, well, I found him on a bad day. That's possible. I only saw him 90 minutes. One of his managers who was there and left. There were two managers with him. One of them, I don't want to say names. Who then left Apple wrote an apology to me about that meeting. He said, I'm sorry about the way you were treated at that meeting. I'm not part of Apple anymore like it is. Yeah. So it is amazing and only a testament to his genius that with that personality, he got the work he got. Any other questions? Okay. Well, again, thank you.