Smartphone investors are putting $200 million into making something out of nothing

A consumer electronics start-up called Nothing has secured more than $200 million in funding to launch its debut smartphone, in the first attempt in several years by a newcomer to crack an Apple and Samsung dominated market.

Nothing will reveal the design of his first smartphone, called Phone (1), on Wednesday before it goes on sale this summer. The device has a transparent back, exposing electronic components, such as a wireless charging coil that is normally hidden, and runs on the Android operating system.

The company’s financiers include Alphabet’s venture capital arm, EQT Ventures and former Apple designer Tony Fadell. They bet Carl Pei, the chief executive of Nothing, who previously co-founded the Chinese smartphone brand OnePlus, can succeed where even Andy Rubin, the co-founder of the Android mobile operating system, failed.

Rubin’s startup Essential raised $330 million but closed down in 2020 after the smartphone’s launch in 2017 sold fewer than 100,000 units in its first six months, according to estimates from research firm IDC at the time.

“I come from a very hardware-oriented background and he comes from a very software-oriented background,” Pei said of Rubin in an interview with the Financial Times. “People with more credibility than me have tried and failed. † † They underestimate the complexity of this industry.”

After several years in which most smartphones have come to resemble Apple’s iPhone designs, Pei said, “people crave something new.”

After the failure of start-ups like Essential trying to offer more new designs, the smartphone market has become more concentrated.

According to market researchers Counterpoint, just four companies accounted for nearly three-quarters of the 1.4 billion smartphones sold worldwide last year.

Pei’s previous venture, OnePlus, is part of China-based BBK Electronics, which has become the fourth largest smartphone player alongside Apple, Samsung and Xiaomi, through a range of brands including Oppo, Vivo and Realme.

That concentration has made launching a new device even more difficult in recent years, Pei admits. Manufacturers are more reluctant to work with new entrants after being burned by low sales from previous start-ups. Obtaining components, many of which are already limited in the industry, is more challenging for lower volume new entrants.

Nothing's CEO Carl Peis
Nothing’s chief executive Carl Pei said ‘people crave something new’

Last year, Nothing initially ordered about 700,000 screens for the first series of Phone (1), but has been able to increase that order after raising more capital and instilling confidence among distributors with the launch of its first product last year, a pair of wireless earbuds that sport the same transparent housing as the forthcoming phone. Nothing has shipped 530,000 units of Ear (1) since the device went on sale last August.

That helped “prove to the market that this team can not only design a really beautiful product, but also manufacture and sell it on a large scale,” Pei said. “With this point of evidence, we raised more money to be able to build a smartphone. And then if the smartphone does well, we can raise more money to do the next thing we want to do.”

None has raised $144 million in equity financing and has a $65 million revolving line of credit from its sales partners. The company is partnering with O2 in the UK, Deutsche Telekom in Germany and Flipkart in India to distribute the phone when it launches, with ambitions to eventually launch in the US if Phone (1) sells well.

With 330 employees, nothing is running supply chain and hardware from Shenzhen, China, with design and marketing in Europe and other teams in India, Taiwan and California. The intellectual property behind its products is in the UK.

“A lot of Android manufacturers just take market share from each other and don’t do anything completely different to even try to take market share from Apple,” Pei said. “I think the result of this product is that we will convert more iPhone users than other Android phones.”

As for Essential, some of his ideas might get a second life with Phone (1). Last year, Nothing acquired some of its intellectual property rights.

This article has been updated to remove an incorrect reference to Qualcomm as an investor in nothing

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