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Tuesday, June 18, 2013

InkSpin1 : Spinning Through Taxpayer Money

InkSpin1 : Spinning Through Taxpayer Money

Think back to the year 2007, 6 years ago. The world was a lot different then. Apple had just introduced their first iPhone, George W. Bush was still the US president, and being a hipster wasn't yet hip.

It's also the year that InkSpin1 (now Vispel -- more on that later) was founded, with the goal to provide video calling through your TV set.

InkSpin1was founded as an incubator company from ASI (Ambient Sound Investments). ASI is a private equity fund financed primarily through the success of Skype. Skype, a company registered in Luxembourg and founded by a Dane and a Swede, is heralded as an Estonian success story. This point was hotly debated in a previous post on this blog (see comments). In the end, we just flipped a coin to reach a conclusion on the matter.

Regardless, one thing everyone seems to agree on is the 4 Estonians who founded ASI played key roles in the early development of Skype, and they used some of the wealth they gained from Skype's sale to eBay and later Microsoft to build ASI.

This is how it's supposed to work, right? ASI is a private firm, funded with private money, investing in new technology firms. Can't complain about that, can we? Well, let's take a closer look at things.

Enter the Taxpayer

In 2008, shortly after InkSpin1's founding (and still a time when being a hipster was not hip yet), there was an interview with the CEO of the company at the time, Martin Villig. According to the article:

"InkSpin1 will conduct preliminary studies in a number of countries; monetary support for this will be applied for with Enterprise Estonia."

Wait a minute. Isn't this an ASI portfolio company? What do they need government money for?

Maybe it was just a few thousand euros. Let's have a look:

Sadly, it wasn't. InkSpin1 has received 542,663 euros in taxpayer money!

What's worse is this wasn't just a one-time thing. The money started flowing to them in 2009, and continued to flow through 6 different projects. They even received new funding last month!

But maybe we're being too critical. Sure, this company was originally funded from ASI, but maybe those Skype guys funding ASI simply ran out of money. Maybe they went on a week-long party binge and wasted all their money on hookers and blow. Perhaps they woke up with Mike Tyson's tiger in their hotel suite?

As much fun as that sounds, we doubt that happened. First, the Skype guys seem like cool and sensible fellows. One of them, Jaan Tallinn, recently did an AMA on Reddit so you can see what makes him tick. Second, we know they still have money because Aripäev reported that ASI's balance sheet at the end of 2011 was over 87 million euros.

The Product : So Call Me, Maybe?

Let's have a look at the product. Perhaps it's a real winner, and thoroughly deserving of all this investment.

As far as we can tell, it's a solution that can be integrated into a set-top box (STB) that hooks up to your television. So you can sit on your couch and make video calls with your TV set.

Actually, that doesn't sound so bad, assuming you remember to sweep the Doritos crumbs off your pants and change out of your sweat-stained shirt first. Video calling is growing in popularity, and people use it every day with their smartphone, tablet or computer, and it works well.

Ahh, but there's the catch! People do it already! On some other device! Will they move to doing it with a TV?

Maybe they will, but we're not convinced the call will be done via the set-top box. All TVs these days are basically just a larger version of a computer monitor, with plenty of HDMI and VGA inputs on the back. Wouldn't it be just as easy to have your existing device, like an iPad, output to the TV and bypass the set-top box altogether?

It's a tough call (pun actually intended). There are some merits in the idea, but also some significant risks. In other words, the perfect scenario for a venture capitalist. Why is the taxpayer taking the risk?

What's In a Name?

You may have noticed that one of the taxpayer-funded projects for this company was for branding. The InkSpin1 name isn't catchy, and also goes against the trend in Estonia to name all websites with "24" at the end, like Elu24 and City24. Presumably this is to make it clear that the website is available 24 hours a day, unlike all other websites, which shut down at 6pm (damn those union workers!).

So with that money, they end up with Vispel? As far as we can tell by looking at a version of their website from 2012 (when it was still InkSpin1), they adopted the Vispel name this year.

Rule number 1 when choosing a name. Google it first. We see that there is a blog by that name, and it's from an Estonian woman (Kristel) who writes about her cooking:

Kristel's Apple Blackberry Crisp

Ok, from a company branding perspective, they probably don't need to worry about Kristel, but what about this:

So it looks like HP, a major multinational corporation, has a video-based product called VISPEL. Sure, it's not the same thing, but it's video-related, and our guess is it's close enough to make HP's army of lawyers worried.

We can't find dates on when HP released their product, so it may have been fairly recently. So maybe InkSpin1 is fine then, except it appears they have not registered the Vispel trademark in the EU or the US. Anyone want to bet whose lawyers will win, HP or InkSpin1, if this goes to court?

Very effective use of taxpayer money on branding, isn't it?

Use It If You Can

So let's go over this in summary. We have a company that was funded by wealthy private investors, with no apparent success in the market for the last 6 years. Yet, they receive taxpayer money, again and again, with a sum of over half a million euros.

What is particularly troubling is it seems this company was set up from the start with the plan to suck up taxpayer money. Some claim that all this taxpayer funding is needed because there is no private equity available in Estonia, but this is a perfect example of where that's not the case. This company got investors first and then they go to the taxpayer. Is this how it's supposed to work?


  1. The fact ASI invested some does not mean they have to invest more; even if they are 100% owners. It's their money. And their pockets are not bottomless.

    The EIS side, fact that some men from ASI decided that they don't have that much investment money for that project does not inherently mean that EIS has to decide the same way. Also you don't know if they got investments from both; in 2009 they got from EIS ~33%, even if they made bookkeeping magic they still need some money from somewhere else.

    How do you measure effectiveness on EIS who is supposed to take so many chances that they will not break even. They are supposed to throw money as effectively as possible.
    Please think out an objective way to measure EIS. Perhaps measure jobs, money stayed in Estonia, export from Estonia, some high-tech jobs that create high-tech workers, also increase the ability for estonian mentality to take risks and lose.

    I know that the people who created OldeHansa made not one but two restaurants bankrupts, before the oldehansa idea. Now it is one of the reasons tourists come to old town, other restaurants slightly copy them.

    One is being stupid, other is just kicking for mistakes.
    Stupid is to give taxpayer money away to companies who have left Estonia or will leave, 0 taxes and 0 everything else.
    I thank you for beating EIS for throwing that money away.

    Back to original, looking at CORPORATE set-top-boxes for videoconference, they are bloody expensive, one point with 1 mics, a tv, camera Cisco telepresence at ridiculous prices.
    People still buy them, because they are a solution that just works, unlike pc-based skype.
    So to say that set-top-box solutions don't have any market just shows you have not worked in multinational corporation.

    Set-top box will be dead because Microsoft integrated Skype with xbox + kinect2 but that is 05.2013 news. Unfortunately no decent microphones or fun or non-toy UI as of yet.

  2. theres many other companies who also got remarkable amount of funds from EAS, including ZeroTurnaround, Nartest, LDI, Grabcad - what about them? Are they all bad? What is alternative - lets start potato fields again?

    1. Actually, I don't think ZeroTurnaround or Grabcad got any money. Grabcad moved to Boston, and ZeroTurnaround has a very large office in Boston. So they're helping the American economy maybe more than the Estonian economy.

    2. hm, cant agree - they got, records from EAS database:

      GrabCAD OÜ CAD tarkvarade kasutuselevõtmine 6391.17 8451.23 Harju Alustava ettevõtja stardi- ja kasvutoetus (2007-2013) ESF 12.07.2010

      GrabCAD OÜ GrabCAD CAD Library ja CAD marketplace lahenduse arendamine 31955.83 51129.32 Harju Alustava ettevõtja stardi- ja kasvutoetus (2007-2013) ESF 24.09.2010

      GrabCAD OÜ GrabCAD eksportturundus 60000.00 120000.00 Harju Eksporditurunduse toetus (2007-2013) ERDF 05.10.2010

    3. Zeroturnaround OÜ ZeroTurnaround OÜ strateegia väljatöötamine ja juurutamine 2556.47 5112.93 Tartu Teadmiste ja oskuste arendamise toetus (2007-2013) ESF 15.06.2010

      Zeroturnaround OÜ Turundus- ja müügijuhi kaasamine 86585.00 173170.00 Tartu Arendustöötajate kaasamise toetus (2007-2013) ESF 10.05.2011

      Zeroturnaround OÜ JavaRebel 95867.09 239667.72 Tartu Eksporditurunduse toetus (2007-2013) ERDF 19.06.2008

      Zeroturnaround OÜ LiveRebel 112963.84 225927.68 Tartu Eksporditurunduse toetus (2007-2013) ERDF 17.08.2010

  3. I have tried a export idea of a system VERY widely used in Estonia with 0 taxpayer money and 0 venture capital money - only existing flow from existing Estonian customers. I have seen it have mild success on Americas and being utterly destroyed by the same names that are frequent mentions here in this blog. We managed that with zero monetary investment and by only goodwill of the few employees.

    Have been on "meetings" with some of these guys - yeah the big names who like to pose in Äripäev. I can safely say that: the Estonian venture capital scene is a joke. The ones worth mentioning is the ASI crowd and even they couldn't resist throwing money away in 2007-2010 when they had pockets full. The rest could only play with other peoples money and that is what they are doing - because if it was theirs they would loose sooner you can say pooh. Let's just say they will never find the needle in the haystack (one in 100 company that succeeds) because they are more worried about their own egos than looking for it. The guy-s who ARE looking for it don't need 99 companies to fail - the only need a few.

    In the IT business where most of Estonian startups are positioning themselves there is no need for big amounts of cash for the business model prototyping stage. You just need to do it. Then if you are successful you are already in the league where you look at the whole world venturists not EAS/Estonian ones. So what EAS does is utterly useless feeding of stupid ideas that don't get the money elsewhere.

    Now to the last commenter here: YES lets start potato fields! At least with the EAS money. You will never take good risks with other peoples money in the seeding stage where there is 1 employee and a dog.

    PS: As a side note: I am doing it now (well not potato) and there is much more innovation possible in the agriculture than in the IT business. For example: if you could weigh a pig with a cheap mobile phone camera to a accuracy of 5-10% you would have a "killer app" in your hands for all the pig farmers.

  4. Dear Anonymous Blogger, you wrote so many articles about "wasted taxpayers money", but you do not write anything about solution to this "problem".

    Other countries are injecting trillions of dollars into their economies, they spend many times more taxpayers money, they waste their taxpayers money to fix holes in other economies. Why you do not want to write anything about it? You call this tiny trial to stimulate dying Estonian IT sector - a bubble.

    Why are you specifically attacking this EAS fund? The amount of money they spent is public information. Everybody can read about it. If you want to find inefficient money spending then you need to write about education, medicine, army. There are dozens of places where many more taxpayers money are spent inefficiently:

    - people are studying in university for many years, government pays for them and they leave country and pay taxes in other EU countries

    - government spends millions of euros for army, participates in various NATO operations, while all this is not needed at all

    - government makes wrong decisions forced by EU directives, which cost millions of euros for taxpayers and lost job places

    - and many more ...

    Readers have no idea what is your motivation behind these blogs. From all this it looks like you are trying to attack particular group of people. Maybe they just do not want to share something with you or your organization?

    You need to open your eyes and think about this bubble problem deeper in context of whole EU, its funds, reason for funds existence and price countries paid to be able to use these funds.

    1. Well, we're the Dot _EE_ Bubble, not the Dot _EU_ Bubble. We agree with you that plenty of EU funds are wasted all over the EU, but we just don't know enough about those other countries to write about it, and plenty of other blogs write about EU wastefulness anyway. Meanwhile, no one is really writing much about this in Estonia specifically.

      As for EAS spending, yes it's public information, but people aren't aware of it, or they don't know enough about the specific companies involved and why they should not have received funding in the first place.

      Any time EAS puts out a press release about some new program or accomplishment, notice they never mention the actual money involved. Then, when the journalists write about it, they seem to just write what's in the press release and never investigate further. No one is asking the questions about how much money is being spent, and whether that is an effective use of taxpayer money. We hope our blog will start such a dialogue.

  5. Vispel is actually an Estonian word - a whisk. Can you trademark a word in foreign language? :P dunno..

  6. Not specific to this entry, but i'd like to see more balanced view from an accounting point of view. Not all money is lost: it goes to salaries which are taxed. The taxes are the true return of invest of public money, not the profit. The salaries also lead to expenses that are also partly taxed. I won't. Teach you the keynesian multiplier.
    To make a long post short, writing off all public monney is misleading. Could you go into the books and deduce the salaries paid in estonia from this writing off?
    Not to aforementioned that all expenses other than salaries are not made in estonia neither....