Telefónica’s Wayra to enter into Silicon Valley-style convertible note deals with today’s winners

6 Sep 2012

As between eight and 10 companies await selection from 18 start-ups hoping to join Telefónica’s Wayra Academy in Dublin, has learned that the €500,000 that will be invested in the successful start-ups will take the shape of Silicon Valley-style convertible notes.

Speaking with Wayra Academy Dublin director Karl Aherne, we learned that the idea of convertible notes, popular in Silicon Valley, is to give the start-ups better options when it comes to securing first-round venture capital investments after they graduate.

“Up until now we have in Wayra academies given an average of €50,000 per company in return for 10pc equity. This as you would imagine leads to vigorous discussions with the founders regarding the value of the company. If the average investment values the company at €500,000 this can lead to quite emotive discussions, as every founder has a different perception of the value of their company.

“To avoid that whole discussion as part of a convertible note agreement we will buy the company’s debt, so it’s like a loan. However, when the next investor comes we will convert the debt based on the value of the company placed by the investor into equity.

“By doing so we avoid discussions about valuations until they are securing their first private investment. We will also retain the option to continue to invest in the company, hopefully adding impetus to the first round.”

Aherne said that in the start-up world there will be inevitable failures and said that if firms fail to secure follow-on investment or wind down, Telefónica will write off the €50,000 debt.

The cream of the crop

In recent weeks, 18 companies out of 350 were shortlisted for the onset of the Wayra Academy in Dublin. Every six months 20 companies will again vie to be part of the lucky 10 or so selected for incubation and €500,000 worth of support.

Aimed at early stage technology start-ups in particular, Wayra is a global initiative by O2 parent company Telefónica focused on seeking ideas and projects in the fields of cloud services, financial services, future communications, user modelling, M2M, security, e-health, e-learning, mobile applications and games, network/systems, consumer internet services, e-commerce, location-based services, social innovation or in any other digital field associated with mobile software or the web environment.

The judging panel consists of Rick Kelley (director of EMEA Sales – Facebook); Orla Rimmington (operations director – Kernel Capital); Paul Rellis (managing director – Microsoft Ireland); Pat Phelan (founder – Cubic Telecom); Conor Stanley (partner – Bloom Equity), Marcelo Ballona (US-based entrepreneur and investor); Barry O’Neill (chairman and CEO of StoryToys, chairman of Games Ireland); and Eugene Mitchell (marketing and innovation director – Telefónica Ireland).

Aherne said the advantage of Wayra for Telefónica was that it gave the organisation – which serves 320m consumers worldwide – the opportunity to delve into cutting-edge technology development as it happens and as a result be in the lead, rather than play catch-up.

“The benefit of this for everyone is it gives us access to intelligence and allows us to keep our finger on the start-up pulse, but for the companies themselves they get access to Telefónica’s vast resources and markets, everything from legal, technological and financial support to the opportunity to target their products at 320m consumers.”

Aherne explained that there have been more than 12,000 applications for Wayra academies worldwide.

I asked him what he felt was unique about the process in Dublin. “We were taken aback by the quality and experience of the start-ups. Some of the people are ex-Google and YouTube, for example, who have come to the point in their careers where they are willing to start their own companies. The advantage for economy is that each of these start-ups will create jobs and the positions the founders held in their previous company will be back-filled. So it’s job creation in action.”

Another factor in the crop of 18 companies vying for the final places is diversity. Several of the founders are from overseas but based in Ireland and five out of the 18 founders are female.

Aherne said the winners will be revealed today at 2.30pm. The optimum number of winners will be 10 but he pointed out that the judges may decide to invest in a smaller number if they feel there is a need to spread the investment.

Best start-ups to feature on Jason Calcanis’ TWiST

The Wayra Week activities won’t end today, however.

Tomorrow, a few lucky start-ups will be offered a chance to compete to do a one-minute pitch live before an audience of 200,000 people on influential blogger Jason Calcanis’ web TV show TWiST.

At the Telefónica O2 Wayra offices at 4pm, 10 of Ireland’s best start-ups will be given the chance to pitch their companies to a panel of seasoned judges led by Brian Caulfield from from DFJ Esprit.

Ten start-ups will be able to pitch their companies to the panel of judges who will then select the top 3 to compete for the ‘Best Start-up’ title against three start-ups from Northern Ireland.

The final top three companies will be able to pitch live to TWiST in Los Angeles and field questions between 8-9pm that night.

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years