NEW YORK-Robust would be an understatement in describing the third-quarter venture capital market, both overall and for telecommunications in particular.
The wireless and wireline telecommunications sector is one of the key catalysts fueling the phenomenal growth, said Kirk Walden, national director of the quarterly venture capital survey by Price Waterhouse Technology Industry Group, Dallas. During the third quarter of this year, investments in the industry segment totaled $343 million, a 79-percent increase from the same period in 1996.
For the first nine months of 1997, venture capital investments in telecom/wireless companies reached $777 million, exceeding the $737 million invested in all of 1996. If the fourth quarter exhibits the same pace, telecom/wireless investments will break the $1 billion mark in 1997, Walden said.
According to the figures, the telecommunications and wireless sector is part of a surging wave of venture capital investments in American companies.
“Through the first nine months, investments stand at $9 billion, compared to a total of $9.5 billion for the full-year 1996, which holds the current record,” said Donald V. Almeida, director of audit and business advisory services for the Price Waterhouse Technology Industry Group in the United States. “It is now apparent that 1997 will set an all-time record for venture capital.”
During the third quarter, total venture capital investment exceeded $3.5 billion, eclipsing the previous record of $3.2 billion reported during the second quarter of this year. Excluding buyouts and initial public offerings, investments hit the $3.06 billion mark during the third quarter.
“The continued strength of [this] activity truly proves that venture capitalists have a long-term perspective, especially when considering the recent volatility of domestic and global markets,” said Brian H. Dovey, president of the National Venture Capital Association, Arlington, Va.
“These phenomenal figures can be attributed to the fund-raising success venture capitalists have experienced in recent years, strong economic indicators and tremendous opportunities in emerging industries.”
A total of 675 companies received financing, compared with 443 companies in the third quarter of 1996, a 52-percent increase.
“Telecom/wireless investments also demonstrate the much bandied about term `convergence’,” Walden said.
Of the 55 companies receiving funds, 44 were formally classified in the communications industry sector. The other 11 were classified either as electronics or software companies.
Telecom/wireless investments fall under the broader umbrella categories of communications and software and information, both of which continued their leadership roles. Together, these transactions accounted for 317 companies and $1.6 billion in venture capital investments during the latest complete quarter.
“The year-to-date figures show just how much technology-based companies are driving overall investments,” Almeida said. “For the first nine months of this year, investments in technology-based companies are up $1.5 billion over the same period in 1996. Investments in all other industries rose about $500 million.”
In the wireless/telecom sector, one of the largest venture capital investments during the third quarter was $19.2 million in fourth-stage financing for Metawave Communications Corp. The Redmond, Wash., company designs, manufactures and markets intelligent spectrum management tools for wireless carriers.
Santa Rosa, Calif.-based Verticom Inc. received $12.5 million in third-stage venture capital investment in its wireless communications commercial radio subsystems business.
One of the noteworthy deals cited by Price Waterhouse and the National Venture Capital Association was a $6 million start-up capital investment in Silicon Wave, a San Diego company designing Code Division Multiple Access handsets and high-performance radios.
Walden noted that wireless/telecom investments weren’t restricted to the West Coast. “Telecom/wireless companies in every region of the country received funding this quarter,” he said. “The geographic spread of companies is a good sign for entrepreneurs. It seems that a good idea and a realistic business plan matter more than where your company is based.”
Diversity also was evident in the development stage of all companies receiving venture capital investments.
“On the one hand, investments in expansion and late-stage companies indicate venture capitalists are sticking with earlier investments to bring them to fruition,” Almeida said.
“By contrast, formative-stage companies are the longer term future, and they continue to attract capital in record numbers. In fact, 45 percent of all companies were in the formative stage this quarter.”
The Price Waterhouse survey involved responses from 484 venture capitalists, who also identified 244 co-investors. Further information about the Venture Capital Survey can be obtained on the World Wide Web at: http: www.pw.com/vc
