Martyn Warwick reports on the demise of a promising start-up that was destroyed by failing to come clean about both the limitations of its technology and its corporate finances.
And so it's 2010 and the circus progresses on its merry way. As usual few telecoms-related announcements were made during the curiously dead days between Christmas and the New Year. However, one that did get through, and slightly earlier than anticipated, was confirmation of the purchase of the battered UK-headquartered voice-to-text technology company Spinvox by Nuance of the US.
Months ago it was evident that Spinvox was in serious trouble and it comes as no real surprise that it has gone the way of the dodo. However, what is a shock is that, in the end (and obviously that end was pretty desperate), Nuance got the British company at the knock-down price of just US$103 million (£64 million sterling) when, mere weeks ago, the talk was that Spinvox would be sold for £146 million.
Spin was Spinvox's downfall and, as we know now, was its trouble from the start. In the beginning, back in 2004 when it began to seek financing, the company had a good story to tell, so good in fact that heavy-hitting investors queued up to sink money into the company. In total more than £150 million poured in - as well as a later £30 million loan.
And now, as the chickens come home to roost, a few preferential shareholders such as GLG Partners and Toscafund Asset Management will get some money back but those optimists that invested early - such as Charles Dunstone of Carphone Warehouse as well as the likes of Goldman Sachs - will get nothing.
Spinvox was a private company founded by Christina Domecq of the Spanish sherry dynasty and her business partner Daniel Doulton, a descendant of the china and pottery family. Ms. Domecq was very much the public face of Spinvox and she assiduously courted the media, tirelessly telling all and sundry of the company's remarkable voice-to-text capability.
This, it was claimed, automatically translated voice into text on the fly with "minimal" human intervention thanks to Spinvox's state-of -the-art algorithms and advanced voice recognition technology. The PR worked, investments flowed into the company's coffers and Spinvox won various awards for "technical innovation".
However, the company took a severe knock - one that first floored it later and led to its forced sale - when disaffected (and allegedly unpaid) staff in call centres in various developing countries including Egypt and India posted blogs revealing that they were employed to listen to voice calls made to Spinvox and to transcribe them manually into text messages.
The company responded with a weak statement to the effect that Spinvox had never claimed that all messages were handled and translated by voice recognition technology alone, but the damage was done and Christina Domecq, usually so happy to speak to journalists and the media, suddenly became unavailable for comment or interview.
Employing people (even on the cheap in the developing world) to transcribe phone calls into text whilst letting subscribers believe the whole thing is being done by advanced technology is an expensive undertaking and Spinvox paid the price in more ways than one.
The last year for which audited accounts are available for the company are for 2007 (and this is 2010 let's remember) show that Spinvox then made a loss of £30.2 million on revenues of just £2 million.
Unaudited accounts for 2008 indicate that Spinvox made a £49 million loss and recently the company said sales for 2009 would be worth about £7 million but admitted that it would still be making a heavy loss.
The writing was on the wall back in September last when Invesco Perpetual revealed that it had written down its £760,000 investment in SpinVox by 90 per cent to just £76,000 - and was by no means sure this was low enough.
Spinvox did secure some potentially lucrative deals with operators and service providers but most were in North and South America, which probably explains Nuance's interest. Alltel Wireless, Bell Mobility of the US and Rogers Mobile of Canada are Spinvox users as is Telefonica in Latin America but the company signally failed to convince or sign-up any mobile operators in Britain, the land of its birth and home.
Thus it seems entirely likely that the rump of Spinvox will be "relocated" to the States and that many of the 230 staff at the company's HQ in Marlow, England will lose their jobs. All Nuance will say is that it will "maintain a presence" in the UK. This is probably PR-speak for a small satellite office and a big bag of mothballs.
Latterly, staff attrition at Spinvox was remarkably high with a churn rate well in excess of 25 per cent per annum being the norm - never a good sign. The turnover rate was no doubt boosted by stories that staff had gone unpaid on several occasions or had even been offered Spinvox shares in lieu of cash.
Meanwhile, several Spinvox suppliers went on the record to claim that they had not been paid in many months. These allegations came just as Spinvox announced it was looking to raise extra financing and had "well advanced" plans to go for a full-on high-profile IPO in the near future.
In fact Spinvox's last round of funding consisted of a series of short-term bridging loans totalling £48.8 million advanced under extremely stringent repayment terms. Upwards of £30 million of this money was due for repayment in December 2009 and it was pretty obvious that Spinvox wouldn't be able to stump up the cash. The date of payment of £30 million was shifted to the end of January 2010, reportedly to let the sale to Nuance go through. After all it's better to get something back by hanging on a month rather than foreclosing and getting next to nothing.
As for Nuance, well, it's probably got itself a bargain. It is paying $66 million in cash and $36.6 million in shares for Spinvox and, being in a massively dominant position (it could simply have walked away from any deal and left Spinvox to go to the wall) is not taking on any Spinvox debt.
Nuance voice technology is used in the iPhone 3GS and Amazon's Kindle and is a major force in the speech recognition sector in the US where it commands a market share of some 66 per cent. The company is on something of a roll at the moment and has made four big acquisitions in the past twelve months. In addition to Spinvox, Nuance has bought eCopy, Jott Networks and Zi Corp.
Nuance's executive vice-president for mobile and the enterprise, Richard Green, says Spinvox technology will be a valuable extra in the company's armoury of advanced voice recognition offerings. He adds, "The Holy Grail for the industry is to get 100 per cent automation and we are well placed to do that." It's certainly more than Spinvox could manage.
The demise of Spinvox means that Britain will now have only one voice-to-text specialist left - VoxSciences, a self-funded, London-based start-up employing just nine people. Interestingly the company's CEO, Ken Blackman, freely admits that some voicemail messages do go through call centres for manual transcription. Had Spinvox been as upfront, its story might have had a happier ending.
But, even now, as the company goes down the tubes, Spinvox is still spinning. It seems it just can't help it. In a curiously upbeat yet detached posting on its website the company says, "Spinvox voice-to-text services will remain unchanged -- you can continue enjoying the benefits of reading your voicemails as text or speaking your voice-to-text SMS messages, e-mails, blog posts or social network updates anywhere you happen to be."
Meanwhile, Nuance says, that as far as it is concerned the futures of Ms. Domecq and Mr. Doulton are "undecided." Do you know, I very much doubt that. I reckon some of the British baggage is already tagged; "Not wanted on voyage."
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