Potter's plan: Time to venture forth

By David Molony, 01 February 1999

In case anybody thought the campaign for liberalization of Europe's communications markets ended with the nominal introduction of full competition on 1 January 1998, they should have a few words with Michael Potter.

A southern California-raised, London-trained economist who took time in Washington DC to study Europe's plans for telecommunications liberalization before setting up in business here, he knows all about the terms and conditions for building networks and marketing services in telephony.

Last week Potter announced he is to quit Esprit Telecom Group plc, the competitive carrier he co-founded in 1991. His new quest: to start a venture capital fund to promote the growth of other new technology upstarts.

He has some harsh words for the governments of Europe, who resisted competition and liberalization in telecoms even though they were notified of it in 1986, and who are now putting up the same barriers to multimedia communications and the global information economy.

"Too many countries have opted out," he says. "Governments in Spain and Italy, for instance, have delayed entry of their economies into the global information society and probably have cost their economies billions of dollars already. Enabling technologies should have been growing up in these economies three years ago...

Potter is one of the most high-profile players among Europe's competitive telecoms operators. Reading, England-based Esprit Telecom, the independent carrier he led for eight years, won licenses in some of the toughest markets in Europe, and is expected to be the first billion-minute new carrier...

"It's a completely separate issue with my plans to move on," said Potter in an interview the day after his decision was declared. "When we started the company nearly eight years ago we really had two visions. One vision was to create a pan-European phone company in the European Union and the second goal was to bring on a world class management team. After eight years we feel we have successfully achieved both of those things."

If Esprit Telecom wasn't already the largest independent phone company in Europe, it certainly is now, claims Potter. And so it is time to move on to the next phase of his campaign to unlock the communications technology market in Europe.

Despite what he says about recalcitrant administrations in Europe, he maintains the investment opportunities are good nevertheless. But he stresses that he will be investing in companies before their initial public offerings, so it's important to make careful valuations of companies and not rush into Internet plays as public investors have done in recent months.

"Venture capitalists by nature have to be very disciplined about how they come up with a valuation," says Potter. "Clearly, when people look at Internet stocks recently on the public markets there's a whole brave new world of valuation, and that may be different criteria from the criteria that is used by the private venture capital community."

His ideal European Internet startup "is generating revenues of between $1 million and $20 million a year ... has technology that is exciting and can be part of a new business model, and is really looking for financial and business expertise to bring it to the next logical level of growth.

That's where a company like ours comes in. We put in the capital to take the pressure off the entrepreneurs and we put in the systems that help the entrepreneurs ... grow the enterprises."

Potter is director of and primary investor in the new fund. For the time being he won't say who Paradigm's other founding investors are, other than that they include Silicon Valley software aces.

"Some of the names will be very familiar to communications industry people," he promises. "But some of the names will be more obscure. They have been very successful in starting up software companies - they have been very successful in starting up telecoms companies. But most of them haven't had a lot of visibility in Europe and that's what they are relying on me for."

And while regulators may curse Potter for trampling in their vegetable garden, incumbent telecoms operators are already talking to him about investing in the fund.

"It should not be surprising," hinted Potter. "They make logical strategic partners because they have network and bandwidth and other expertise, but they are not very strong on the content side. There may be opportunities for cross marketing between customer groups. Also, if the strategy of the entrepreneurs in the portfolio companies is not to get mixed up in the financial markets and IPOs and so forth, they may want the more discreet private sale to one of the large European telcos."

Potter makes no apologies for adopting the name Paradigm for his new project.

"I think all investors, no matter what, are generally looking for some change in paradigm - even real-estate investors!" he argues. "They are always looking for demographics to shift or they are looking for economics to shift or they are looking for transportation inputs to shift. So although it's an overused word it's very descriptive in certain segments of high technology."