NEW YORK-Judging by their investments during the third quarter, venture capitalists can’t seem to get enough of technology companies, including those involved in the wireless communications sector.
“Investments in [the wireless/telecom] sector for the first three quarters of 1999 approached the total amount invested in (it during) all of the last three years combined,” said Kirk Walden, national marketing director of PricewaterhouseCoopers’ Global Technology Industry Group, Austin, Texas.
New records set
Overall venture-backed investments the last quarter hit a record $9.04 billion, skyrocketing past the prior record of $7.64 billion set during the second quarter of this year, according to PWC’s latest “Money Tree” survey.
Compared with the $3.79 billion recorded during the third quarter of 1998, total investments rose by 138 percent. For the first nine months of 1999, overall venture capital investments totaled more than $21 million, compared with about $14 billion in all of 1998.
Technology-based companies that serve a variety of industries accounted for $8.1 billion, or 90 percent, of all investments during the third quarter of this year. That represents the highest quarterly dollar amount the “Money Tree” survey has ever reported for technology businesses.
Under the technology umbrella, the communications category grew by 174 percent to $2.6 billion. For the second consecutive quarter, venture-capital investments in the telecom/wireless portion of communications tripled, reaching a total of $1.81 billion, Walden said.
“Technology companies are attracting venture capital at astounding rates. The increase in both absolute dollars and percentages is unprecedented,” said James D. Atwell, managing director of the Global Technology Industry Group’s Venture Capital Practice.
“This is further evidence that technology is driving the U.S. economy: technology companies added to the Dow Jones Industrials; the Nasdaq breaking 3,000; a selective but strong [initial public offering] market, venture capital filling the pipeline with the companies of the future.”
For third-quarter 1999, the total number of all companies receiving venture-capital funding increased by 40 percent to 993, compared with 707 companies a year earlier. Of that total, 141 companies were in the telecom/wireless sector.
Larger investments
Average funding for all companies also rose-to $9.1 million, a 70-percent hike from the average of $5.4 million during the year-ago quarter.
“Larger investments help speed up product development, shorten time to market and generally build the company faster,” Atwell said.
“And the pool of available dollars is getting bigger, too. It’s becoming common in later-stage financings for venture capitalists and corporate or strategic partners to invest jointly.”
The average amount invested in each wireless/telecom company last quarter was $12.8 million, well above the $5.6 million average a year earlier.
“The increase reflects the large capital needs for companies in the later stages of development to continue the fast-paced growth necessary to succeed in the industry,” Walden said.
Although companies in more advanced stages of development made a strong showing, Atwell and Walden stressed that venture capitalists have not ignored early-stage companies. In fact, formative-stage companies in all industries garnered the most funding-$3.33 billion, or 37 percent of the total dollars.
These start-ups and early-stage companies represented 50 percent of all companies gaining venture-capital financing last quarter. On average, each formative-stage company received $6.6 million, up from $4.3 million a year earlier.
More than 25 percent of wireless/telecom companies on the survey list last quarter received seed or first-round funding. This is the third consecutive quarter that early-stage companies in this sector comprised such a significant amount of the total.
“Venture capitalists continue to show their confidence in the sector by investing in these start-ups, thus filling the pipeline with companies of the future,” Walden said.
The details
By a long shot, Formus Communications Inc., a Denver-based local multipoint distribution services carrier, took the telecom/wireless venture-capital fund-raising lead. A group of 11 venture-capital firms provided it with $115.8 million in mezzanine financing.
Arlington, Va.-based TeleCorp PCS Inc., an AT&T Wireless Services Inc. affiliate that went public in November, also raised $26 million in venture-capital funding last quarter. Choice One Communications Inc., a Rochester, N.Y.-based integrated telecommunications services carrier, garnered $31.4 million in second-stage financing.
Other companies that received more than $20 million from venture capitalists included the following:
Avici Systems Inc., North Billerica, Mass., a provider of high-performance network backbone routing and switching systems, $44 million;
AirNet Communications Corp., Melbourne, Fla., a maker of wireless base stations, $30 million;
iBasis Inc., Burlington, Mass., which offers Internet-based communications services for telecommunications carriers and other service providers, $25.1 million;
Sonus Networks, a Westford, Mass., supplier of carrier-class packet-telephony switches, $25 million;
LetsTalk.com Inc., San Francisco, an Internet-based retailer of mobile phone products, $21.5 million; and
Tenor Networks Inc., an Acton, Mass., provider of high-performance network-switching equipment, $20.5 million.
Among those wireless/telecom companies that received venture-backed investments greater than $10 million last quarter, the list includes two companies based in Sunnyvale, Calif.:
Stanford Microdevices Inc., a designer and manufacturer of wireless communications system components, $17 million; and
Magellan Networks, a supplier of enhanced telecommunications services, including prepaid calling cards and voice mail, $15.5 million.
Tantivy Communications Inc., Melbourne, Fla., garnered $16.4 million to help its development of products for low-cost, high-speed wireless Internet and data access integrated with wireless voice service.
At least three other companies in the sector received venture-backed financing of $15 million last quarter:
Millitech Corp., a South Deerfield, Mass., supplier of broadband wireless access equipment;
Watchmark Inc., Bellevue, Wash., which develops carrier-class network-management software compatible with multiple services and platforms; and
Webley Systems, Deerfield, Ill., a provider of voice-activated, unified messaging and electronic personal assistant services.
Those receiving investments in the range of $12 million to $14 million included the following companies:
Viasource Communications, Fort Lauderdale, Fla., an outsourced technical-services firm serving wireless, information technology, cable TV and landline phone companies, $13.8 million;
PrairieComm Digital Communications, Arlington Heights, Ill., a supplier of chipsets, embedded software and licensed intellectual property to the wireless communications industry, $13.24 million;
SigmaTel Inc., Austin, Texas, a fabless producer of mixed-signal semiconductors for consumer audio and broadband communications appliances, $12.5 million; and
Symmetry Communication Systems Inc., a San Jose, Calif., developer of wireless telecommunications infrastructure equipment, $12.2 million.
“Investments were spread all across the country and touched practically every facet of the industry,” Walden said.
While the largest deal was in LMDS, significant investments were made in digital subscriber line service providers, competitive local exchange carriers, integr
ated communications prov-iders, and broadband transmission technology and equipment, he said.
The PricewaterhouseCoopers “Money Tree” survey tracks quarterly investments by ve
nture capitalists nationwide in U.S. companies in a variety of industries. The 504 venture capital firms responding to the third-quarter survey identified 212 co-investors.
