“Go ahead, touch it!” Wireless Porn Entrepreneur Urges VCs

Evangelizing adult entertainment’s mobile future, Erotigo founder coaxes investors to break investment taboos.

By Xeni Jardin

May, 2001

Silicon Alley Reporter Magazine

The size of your device isn’t everything, and Erotigo CEO Stephanie Schwab believes when it comes to porn, smaller is better.

“Getting adult entertainment through a handheld is a lot more personal, more cozy, and is just less intimidating than the PC --your phone or PDA can go with you anywhere. Oh, and check out this thumbnail gallery,” she says proudly, briskly guiding me through a tutorial of the fledgling mobile startup’s erotic offerings, “No pop-up windows from hell. And navigation is so simple, you only need one hand! How convenient is that?”

Erotigo is a wireless adult content destination and a mobile city guide that aims to deliver sex on-the-fly to mobile users. Offerings include both softcore and explicit images licensed from partner providers, as well as text, and customizable city-specific directories of venues, goods, and services from shoe fetish clubs to upscale drag boutiques … and soon, "escort services." Video, both downloadable and streaming, is also in the works, though Schwab acknowledges that limited GSM availability in the US is an obstacle. But, Erotigo also aims to be a B2B service provider; a sort of wireless enabler to existing adult media megabrands like the Playboys, and Hustlers of the world. Schwab isn't naming names, but says she is talking to anumber of the largest adult media companies, including those that serve gay, lesbian, and other lifestyle-specific markets. “Most corporate clients don’t get wireless, and they’re turning to the AvantGos of the world,” Schwab observes. “When the adult world doesn’t get it, we want them to turn to us.”

The onetime PriceWaterhouseCoopers executive ended a nomadic management consulting lifestyle by placing a down payment on a Silicon Alley condo in Spring of 2000. High hopes of tapping in to the Alley’s boom drew her to the city, and soon after settling down, Schwab and a schoolteacher friend were chatting one evening at a crowded dot-com bash when inspiration struck.

“My friend Bruce and I were hanging out at the Yazam launch party last June, and he’d stored an erotic story on his Palm from a friend -- he beamed it through the crowd to my Palm device, and when I opened up that file something inside my head clicked. I saw the opportunity, and I said ‘Oh my God. I’m not into porn, but if I could get this stuff on my handheld?’ -- and we just spontaneously started the project. He sorted out the technical side and put together the first website, and then I started to think about the city sex guides and other things we could do with content.”

Much to Schwab’s surprise, the impromptu brainstorm was picked up by a reporter from a weekly business magazine, and promptly published. “The story came out, and all of a sudden, we had to tell our parents,” she recalls. “I called and said, Guess what! I’m starting an adult Internet company.’ My parents were completely supportive, and excited that I was starting my own company, but less so when they realized that I’d gone on a number of job interviews and turned them all down to focus more on my company. Not having a fulltime job in the middle of New York City was more of a concern to them than the fact that I’d decided to go into the adult industry.”

As the project evolved to full-time obsession, Schwab bootstrapped the venture with personal funds, credit cards, and debt to service providers that totaled about $250,000 over the year. Aware of the adult industry’s significant market heft, and the pervading sense of investor excitement over all things wireless, she expected an enthusiastic response from VCs about a business model that combined both.

Schwab began approaching venture capitalists she’d met through events or through tech industry contacts. “They all expressed genuine excitement about it, but said ‘Sorry, we can’t touch it.’ They were happy to talk to me, but they wouldn’t take meetings with me on behalf of their firms. They said, ‘this is brilliant, there’s a lot of money to be made here and you are going to be rich. But we can’t take a meeting -- you’re porn.’“ Alley incubators including Mobilespring reacted similarly, she says. “After a number of meetings, and really getting engaged with each other, they told me they ran it up the corporate flagpole and it just didn’t fly. They thought it was just too risky for us to be their first company.”

“When VCs say ‘We really can’t touch this,’ what can I say -- ‘You have to?’” Schwab says. “I understood, but I thought they were being shortsighted and foolish. These investment firms are private companies, and don’t face the same issues publicly traded companies do. They ought to be wise enough to the fact that sex sells, and is a realistic way for a huge sector of the economy to make money.”

As Schwab reached out to Erotigo's partner companies in the adult entertainment for guidance on how to navigate business obstacles unique to the sector, she discovered that the tech and porn business cultures contrasted in ways she hadn't expected. "I was really shocked at how people were treating me in the wireless technology world as compared to the adult world," she recalls, "The adult world was so uniformly open and supportive in allowing access to not only who they are but everything they know. They've taught me so much, and the fact that I happen to be a female CEO means nothing to them—they aren't treating me differently. In the technology world, it's a much tougher battle," she says, noting the prominence of female entrepreneurs in the adult industry such as Danni Ashe of "Danni's Hard Drive," and Falcon Foto founder Gail Harris.

After months of battling porn-shy VCs, Schwab and her team shifted fundraising gears to instead focus on pooling resources from groups of potential angel investors, hoping that individuals would have greater freedom to make investment choices that might generate unfavorable PR consequences for larger firms.

As tech industry fortunes took a sharp turn for the gutter, many of the VC firms Schwab had once courted soon found their portfolios teeming with unsustainable casualties of the dot-com bust. Some of the incubators themselves shut doors. But, as the effects of the crash ripple outward, Schwab says some of the more squeamish VCs have begun to display a pragmatic, though unexpected, change of heart. “They’ve started to come around and say, ‘You know, we get it now. You have a real business model. All the other companies we were incubating … well, they didn’t,’” she says. “Some of the potential angels we’re talking with now are actually VCs we met during the original process who said, ‘Look, I know this is a cash-rich business. My firm still can’t be involved in this … but I want to.”

Erotigo’s prospects are anything but certain, and painfully prolonged woes in capital markets for tech ventures aren’t making the fundraising process any easier. But if the adult entertainment industry's role in proliferating e-commerce and driving consumer web adoption is any precedent, the opportunities for wireless porn companies like Erotigo could be great. Schwab hasn’t dulled the entrepreneurial flame, and hopes to close an angel-led round within months -- fueled in part by a well-received beta release, and shifting attitudes toward the company’s controversial nature. Including that of her grandmother.

“My 82-year old grandmother, who's a little behind the times, thought porn was illegal,” Schwab explains. “She was the only family member who didn’t support me for the longest time -- not for prudish reasons, but because she thought what I was doing was against the law, and that I might end up in jail. She kept saying, ‘Oooh, I hope those VC’s don’t fund you!’ When we finally convinced her that porn isn’t a crime, she’d say, “Don’t forget to tell me how the next angel investor meeting goes, Stephanie! Good luck!”

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