NEW YORK-Venture capital investments in the telecommunications and wireless sector nearly doubled during the fourth quarter of 1997, increasing to $456 million from $233 million during the same period of 1996.
During 1997, investments in this business segment broke the $1-billion mark for the first time, according to the latest Venture Capital Survey of Price Waterhouse L.L.P., Dallas. For the year, telecom and wireless investments exceeded $1.23 billion, a big jump from the 1996 total of $733 million. These investments also grew last year by 67 percent, nearly twice as fast as overall venture capital investments.
The telecommunications and wireless segment cuts across all the traditional high-technology categories, like computer hardware, software and networking. It grew faster than any of those individual categories. Only the Internet segment, which has some duplication with the telecommunications/wireless segment, grew faster in 1997.
“There is every reason to believe that the (telecommunications and wireless) sector will continue to receive disproportionately larger shares of venture capital investments as we continue to move toward a `connected’ society,” said Kirk Walden, national director of Price Waterhouse’s quarterly Venture Capital Survey.
The survey tracks nationwide investments by venture capitalists in all types of industries. The latest results were derived from the responses of 513 venture capitalists plus 225 co-investors they identified. Further information about the survey can be obtained online at www.pw.com/vc.
The single-largest venture capital financing in telecommunications during the last quarter was a $55 million first-stage investment in Formus Communications, a Denver Local Multipoint Distribution System provider. The next largest investments, all in the $20 million range, went to: MGC Communications, a Las Vegas competitive local exchange carrier; Nuera Communications Inc., a San Diego designer and manufacturer of voice-data multiplexers; UniSite Inc., a Tampa, Fla., provider of site sharing services to wireless telecommunications carriers; Metawave Communications Corp., a Seattle designer and manufacturer of spectrum management systems.
Overall venture capital investments set a record, topping the $3.7 billion mark and eclipsing the previous high of $3.5 billion during third quarter of 1997. Compared with the fourth quarter of 1996, investments jumped by 50 percent.
Donald V. Almeida, managing partner for Price Waterhouse’s Technology Industry Group, called 1997, “the year of the entrepreneur.”
Venture capitalists invested a total of $12.8 billion in just under 2,700 companies. Both figures are up by about one-third from 1996, which was itself a record year.
That 1997 set a record was a surprise to many in the venture capital industry who had predicted a leveling off in the tremendous growth experienced during recent years, said Brian H. Dovey, president of the National Venture Capital Association, Arlington, Va. A strong economy, coupled with expanding opportunities in emerging industries, drove the upward trend, he said.
“Venture capitalists remain cautiously optimistic that industries [like] software and information, communications, biotechnology and health care will continue to provide investment opportunities that will fuel job creation and economic growth in 1998,” Dovey said.
Price Waterhouse’s Almeida expressed more exuberant optimism.
“We expect 1998 to be an excellent year for entrepreneurs and venture capitalists alike,” he said.
“Investing will be driven by more new opportunity and by later-round funding of the nearly 5,000 companies that received venture capital in the last two years.”
During 1997, companies in the expansion stage of development garnered the most funding, more than $1.3 billion, but not at the expense of start-up companies.
Last year, Almeida said, the number of formative stage companies financed through venture capital investments increased to 1,209 from 864. Average funding per company in this stage of development increased by about 6 percent over 1996.
From a geographic standpoint, California’s Silicon Valley continued to lead the pack in 1997, accounting for almost $1 billion, or more than 25 percent, of all venture capital investments made. In terms of growth rates, Silicon Valley, the New York City Metropolitan Area, Los Angeles-Orange County, Calif., and Texas all experienced increases of more than 40 percent last year. In terms of total dollars invested, New England ranked second after Silicon Valley, followed by the Southeast and Texas.
