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Upwardly mobile

Being first out of the blocks with a new idea is a recipe for success, but chief executive of NewBay Software, Paddy Holahan, is careful to maintain a structure that will endure in the long term, writes Gavin Daly.

NewBay Software expanded so fast last year that the firm had twice as many people as expected at its Christmas party.

That meant the venue for the party - which had been booked last June - was 'pretty cosy', according to NewBay’s founder and chief executive, Paddy Holahan. He hopes to avoid the same thing happening this year, although his plans for 2008 include hiring another 100 staff, bringing NewBay’s total to about 270 people.

Holahan founded NewBay in September 2002 after recognising that developments in mobile phones would allow people to create their own internet content, such as pictures and blogs. His view that every mobile phone owner in the world could one day have their own website seemed futuristic at the time, but not any more.

Some of the biggest mobile phone operators in the world - including Vodafone, O2 and T-Mobile - now use NewBay’ s software to allow their customers to create online content.As social networks such as Facebook, MySpace and Bebo have developed, so too has the market for the Dublin firm’s software. NewBay started out with a product called FoneBlog, which allowed mobile phone users to create blogs using their phones. With early revenues from FoneBlog, the firm continued development of a range of products. Holahan started to see demand really taking off in the second quarter of 2006.

'The first phase of this trend towards content systems was blogging and we latched onto that as our calling card,' he said. 'But it was never just about blogging. Anything related to the digital lifestyle is in our domain or our future domain.' Holahan said the market NewBay was targeting had developed in a similar way to many new technologies - going through a period of hype, followed by a levelling-off and then a large take-up in demand. The firm now has a range of products under the name LifeCache, which allows phone customers to create so-called ‘user-generated content’, such as pictures and videos.

'We are not in the hype game any more,' Holahan said. 'Last year was a massive pressure year in terms of delivering - our people worked very hard, we retained all our customers, delivered on contracts and got paid.' Revenues at NewBay trebled last year, rising to about €13 million from€4.4million in 2006. Revenues are split almost evenly between the US and Europe, and NewBay has built a network of international offices, with more in the pipeline, according to Holahan.

Despite the investment in expansion, the firm is profitable and cash flow positive. Holahan said 'a lot of structural work' was done last year to ensure that NewBay could continue to grow and meet demand from its customers. That included a 'strategic review' that led to a decision to seek more external funding. Holahan said that NewBay had talked to a number of venture capital firms before agreeing to an investment from Fidelity Ventures, a heavyweight US venture capital fund.

Fidelity typically backs well-established firms and has previously invested in Irish software firms Curam Software and Qumas. NewBay last week announced details of the €6.5 million funding round, led by Fidelity and backed by Balderton Capital, an early investor in the firm.

Simon Clark, a partner in Fidelity, is joining the board of NewBay, which already includes Balderton’s Barry Maloney and former Yahoo! executive Mark Opzoomer. Clark said NewBay had built ‘‘an impressive roster of clients, such as T-Mobile, Orange, Vodafone and Telefonica O2,with proven products that are generating meaningful new revenues for these operators’’. Holahan would not comment on the valuation placed on NewBay in the recent funding deal, but said he was satisfied with the terms. ‘‘We did a deal - and we didn’t have to do a deal," he said. ‘‘The funding demonstrates a plan to grow.

'We are taking a long-term view. There is a large business out there and we are well-positioned in it,' he said. 'There is a pretty large-size opportunity - this could be a billion euro market and you could have all the big names of tech chasing it. We’re a late-stage start-up or an early-stage large company, so it’s a pretty exciting stage." Holahan said NewBay was in its third stage of development, which he described as 'NewBay 3.0'. 'In the first stage, we had no customers, no contracts and no revenues. In the second stage, we w ere making adjustments to the products and getting sales. Last year, we delivered on projects, retained all our customers and got paid.

'The third stage is about getting the structures in place for growth and executing on that. If we execute on the opportunities in 2008 and hit our revenue target and our profit target, we will have been successful." Holahan said the company had no plans for an early exit, and his long-term plan was to build a large, profitable Irish technology business. While he said it could be difficult and time-consuming to win contracts with large mobile phone groups, the deals are lucrative, with operators using the software in several markets.

'There has been consolidation in the [mobile] industry and we’re dealing with the same customers around the world,' he said. 'It’s harder to get in [to win deals], but because it’s hard, it’ s valuable. They’re not just looking for a transaction - it’s a relationship and you can build on that relationship with revenues over a number of years. We did a lot of work in ’06 that led to revenues in ’07 and will contribute in ’08."

Before founding NewBay, Holahan was an executive vice president of Baltimore Technologies, which was valued at several billion euro during the dotcom boom, but was ultimately broken up and sold off after a series of profit warnings. 'In Baltimore, there was rapid growth, but it wasn’t as coupled to reality,' said Holahan. 'That was the game in those days, but now it is about growing in a structured fashion with good customers and a strong balance sheet.'

Outside NewBay, Holahan has other technology interests, notably as a non-executive director of Web Reservations International (WRI), the highly-profitable internet firm. Holahan was chairman of WRI for more than six years and stepped aside last month, when the firm appointed a new chairman and chief executive.

WRI has been linked to a trade sale or flotation that could value the company at more than €500 million. That would make it the most valuable Irish technology company by some measure, and would boost the Irish technology sector, which is dominated by small companies.

'One thing that is missing [in the Irish technology industry] is the big company, and that is of concern,' Holahan said. 'We have everything except the big company - there are good small companies and there is a good pipeline of new companies. It is just a matter of delivery.'