NEW YORK-Venture capital-backed investments in the third quarter of 1998 reached an all-time high of $3.77 billion, a nose ahead of the $3.73 billion record set during the second quarter of last year.
In all sectors, these investments rose by 29 percent from the $2.92 billion reported during the third quarter of 1997, according to the PricewaterhouseCoopers Money Tree Survey. The telecommunications/wireless sector out-paced overall investment growth, increasing to $538 million, up 37 percent compared with the same period a year ago, according to Kirk Walden, the Austin, Texas-based national director of the survey.
“Venture capitalists looked beyond the stock-market turmoil to the longer-term potential of telecom/wireless companies,” he said.
For the first nine months of 1998, venture-backed investments in wireless/telecom companies totaled $1.3 billion.
“Investments for the full year are certain to break last year’s record of $1.4 billion by a wide margin,” Walden said.
Leading regions for wireless/telecom investments were California’s Silicon Valley, the Washington, D.C., Metroplex area, New England and the Southeast, “indicating the pervasive nature of the technologies and their applications across the country,” he said.
“Practically every aspect of the telecom/wireless segment received funding, including hardware, software and business and consumer services. The continued demand for greater bandwidth, faster access and global interconnectivity helped fuel the increase.”
Across industry sectors, 1998 likely will close with $14 billion in venture capital investments, eclipsing last year’s total of $11.5 billion, said James D. Atwell, managing partner of the venture capital practice in PWC’s Global Technology Industry Group.
“Two factors contributed to the unprecedented investment levels. Valuations, especially for the top-tier deals, remained high despite the stock market, fueled in part by the increasingly competitive nature of the venture-capital industry,” he said.
“Second, confidence in the longer-term potential for extraordinary returns from technology companies overshadowed the short-term market fluctuations.”
Formative-stage companies in the start-up and early stages of development received the most funding overall, $1.26 billion, or one-third of total dollars invested last quarter. They comprised 41 percent of all 708 companies gaining venture-capital financing. A record-setting 96 wireless/telecom sector companies received venture funding last quarter, compared with 74 during the third quarter of 1997.
On average, funding per company increased by 20 percent to $5.3 million, up from $4.4 million a year earlier. Some 40 of the 96 wireless/telecom sector companies receiving venture financing last quarter garnered investments that were above average, often substantially so.
In this sector, the single-largest venture-capital investment last quarter was $51.75 million for Sonera Communications L.L.C., a Santa Barbara, Calif., provider of telecommunications infrastructure equipment. The second-largest amount, $21 million, was invested in Wireless Facility Inc., a San Diego wireless systems integrator.
For start-up companies of all kinds, the average investment was $4.3 million last quarter, up from $3.6 million the prior year.
“Start-up companies, particularly technology companies with proven management, an innovative product and a solid business plan are in the ideal position to shop for venture capital,” Atwell said.
The PricewaterhouseCoopers Money Tree Survey tracks quarterly investments in American companies in all types of industries by venture capitalists nationwide. Further information about the survey can be obtained on the Web at: www.pwcglobal.com
The latest quarterly survey was compiled from the responses of 496 venture capitalists, which identified 176 co-investors.
