NEW YORK-The flow of venture capital into domestic companies in wireless-related industries reached $192 million during the third quarter, a $30 million increase compared with the prior quarter, according to Price Waterhouse Technology Industry Group, Dallas.
Venture capital raised during the third quarter of this year totaled $2 billion, compared with $2.43 billion raised during the second quarter of 1996, according to Price Waterhouse’s National Venture Capital Survey. However, the $2 billion total for the latest complete quarter represented a $400 million increase compared with the same quarter a year earlier.
“Based on the current rate of venture capital investments, 1996 is almost certain to be another record year; the first nine months total $7 billion, very near the $7.5 billion reported for all of 1995,” said Donald A. McGovern, chairman of the Technology Industry Group. “Third quarter numbers traditionally are lower than second quarter numbers, as deal flow slows down considerably during the summer months.”
The initial public offering market for equities “sort of cooled a bit in June, July and August,” said Kirk Walden, national marketing director for the Technology Industry Group. “If I were a cynic, I would conclude the (venture capital) deals would fall down. In fact, they did better than last year, so this was quite an encouraging sign.”
The IPO and venture capital markets influence each other in two ways, Walden said. First, venture capitalists cashing out of their stake in certain companies that are going public then have money available to make venture capital investments in other companies. Second, the IPO market affords venture capitalists benchmarks to appraise the value of similar companies in which they are considering taking a position.
Some 70 percent of all companies receiving venture capital financing in the third quarter were technology-based, capturing $1.32 billion, or 66 percent of all dollars invested. Nearly half of all funds went into this year’s most popular business categories: communications and software and information.
The fact that software and wireless-related venture capital investments are increasing in tandem “speaks to a convergence in these industries,” Walden said. “Surely the expansion (in wireless communications) isn’t infinite, but it hasn’t nearly realized its full potential.”
Among the most noteworthy deals in the third quarter, according to Price Waterhouse, was $10.3 million in early stage financing for Ex Machina, a New York company that merges computer and wireless technologies. “In the formative stages, which indicate that payback is two to five years down the road, (financing) says investors are in it for the long run,” Walden said. “This is a classic case of building a company and the economy from the bottom up.”
In the wireless sector, other big dollar gatherers included these companies: Diablo Research Inc., a San Jose, Calif., developer of data transfer and control applications, $15 million; CommQuest Technologies, an Encinatas, Calif., producer of digital wireless products, $14.8 million; Toll Free Cellular Inc., a Seattle provider of free calling for cellular carriers, $13.83 million; Telecorp Holdings Corp. Inc., an Arlington, Va., personal communications services provider, $7.5 million; and Microwave Components Enterprises Inc., an Ann Arbor, Mich., manufacturer of microwave components, $7 million.
Price Waterhouse’s third quarter survey was based on responses from 369 venture capitalists. Another 151 co-investors also were identified by survey respondents. Further information about the survey may be obtained from the Price Waterhouse Web site at http: www.pw.com/vc
