Canadian mobile market entrepreneurs find credit despite crunch

An economic recession might be causing a credit crunch for many companies, but in the mobile space at least two entrepreneurs appear to be bucking the trend — finding much needed funds to grow their business in new and interesting ways.

The two Canadian firms proving it’s not impossible to tide over signficant challenges faced by entrepreneurs in a tough economy are Montreal-based Airborne Mobile and Edmonton-based Ukalta Engineering.

Both are focused on developing products for the mobile device industry and have been able to recently acquire crucial funding in pursuit of key business goals.

While traditional industries such as forestry and manufacturing are tanking, the mobile marketplace represents one of the economy’s few bright spots, according to Chris Arsenault, managing partner at Montreal-based iNovia Capital.

“We do strongly believe in the mobile application and content space,” he says. “This is not an industry that is going away.”

North America has lagged behind the burgeoning mobile markets of Europe and Asia, the investor adds. But now is the continent’s time to play catch-up and there’s potential for entrepreneurs who want to play a role in making that happen.

It’s this conviction that led iNovia to offer $2 million in growth capital to Airborne Mobile on Jan. 12. The decade-old company produces content for mobile phones such as applications, video, ringtones and wallpapers and is distributed via every mobile carrier in North America.

Airborne is just coming off of its most profitable quarter ever at a time when many companies are planning to downsize and tirm costs. With offerings that carry an average price-point of about $2, the company enjoys a certain immunity to economic hardship, according to CEO Garner Bornstein.

“I think the situation has to get really bad before people start cutting back on things like this,” he says. “Our products tend to fly under the radar.”

The past quarter also saw Airborne’s two founders take back control of the company from majority shareholder, Japan-based Cybird Co. The company was bought back for “significantly less” than it was sold for, and was able to cut several unprofitable product lines and refocus on the successful ones, Bornstein says.

Cybird had purchased about 85 per cent of Airborne in a deal worth over $90 million in 2005.

Now the firm plans to focus the first half of 2009 on releasing an application for home buyers and real estate agents, an interactive cable TV network, and a privacy application that masks phone numbers when dialing out.

Another Canadian firm focused on products for the mobile industry that’s successfully attracting capital is Ukalta. The Edmonton firm got $370,000 in funding from Ottawa-based Precarn Inc., the Alberta government, and Western Economic Diversification Canada on Dec. 11. (Precarn funds collaborative research conducted by industry, university and government researchers).

The funding offered to Ukalta was one parcel of a total of $2.8 million announced by Precarn and its partners to promote research and development for systems projects in Alberta.

Ukalta is developing hardware that wireless device manufacturers could use for early-phase testing. Instead of physically testing a prototype cell phone by using it while driving down the highway, in the middle of a field, or in a basement, a device could simply be plugged into this piece or hardware that would virtually simulate all that.

Resulting benefits are time- and cost savings, and more reliable test results, according to Maziyar Khorasani, chief marketing officer with Ukalta.

“It’s sort of like a wind tunnel for wireless devices,” he says. “Our test suite is comprehensive and low-cost.”

The prospect of bringing value to the mobile market helped Ukalta score points with Precarn in an open competition for the funding, according to Derek Best, director of research programs at Precarn.

“I think wireless is certainly an industry that is expanding,” he says. The technology is “growth-oriented” he said, noting a range of new products and services are being offered wirelessly.

The University of Alberta is also assisting with the development of the virtual wireless testing product. It’s alumni include Ukalta’s founders.

Right now the hardware is in its prototype stage and the plan is to bring it to market in mid-2010, Khorasani says.

Not everyone in the wireless space is winning. Economic realities have affected other Alberta companies in the sector and many have downsized, he adds. Likewise, Airborne has seen many of its competitors disappear, according to Bornstein.

The market is so volatile right now that there is no such thing as a safe investment, iNovia’s Arsenault says. But investors can choose the right areas now so that when the clouds clear up, they are poised for success.

“You don’t just stop innovation,” he says. “Once a train is going, it won’t stop because there’s a hill in front of it, but it might slow down.”

The number of new users for wireless services and the dollars invested over the past two years point to success for the industry, Arsenault says.

iNovia has also made another investment in a mobile industry related company.

Westport, Conn.-based LegiTime Technologies Inc. aims to create “the professional SMS platform,” the investor says.

The company provides a service that allows for SMS to be used to make corporate-level approvals and confirmations. It adds the ability to organize and audit the text messages.

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