Telecom Venture Investment Hit by Economy
During the recession, venture capitalists in the U.S. telecom industry are focusing on keeping their current investments afloat instead of expanding their portfolios, experts said in interviews. But some wireless and IP investors are filling the gap, they said. Meanwhile, venture capital firms are interested in funding companies that might receive economic stimulus money.
Sign up for a free preview to unlock the rest of this article
Communications Daily is required reading for senior executives at top telecom corporations, law firms, lobbying organizations, associations and government agencies (including the FCC). Join them today!
Venture capital investment in telecom declined 72 percent quarter on quarter, to $110 million in Q1, said a report by the National Venture Capital Association (NVCA) and accounting firm PricewaterhouseCoopers. If investors can get the start-ups to positive cash flow, they might afford to wait it out, said Mike Fitzgerald, founding partner of Commonwealth Capital Ventures, whose investments focus on early stage telecom and IT companies. Venture capital firms invested less in networking companies in Q1 than in any quarter since 1996, the report said. Companies selling services that require network upgrades are also hit hard, said Salvatore Tirabassi, partner of MC Venture Partners, which invests in service providers.
Investment in start-ups has been weak, Fitzgerald said. Commonwealth Capital Ventures, which invested in eight companies last year, is only targeting four to six companies this year, he said. He said he expects a modest improvement in 2010. Other than funding the Canadian start-up Public Mobile, MV Venture Partners hasn’t found any exciting deals in Q1, Tirabassi said. Though the service sector has showed some resilience, the company has mainly focused on portfolio management in Q1, he said.
But there is a silver lining: Wireless, IP-based services and femtocell remain robust, said Craig Mathias of consulting firm Farpoint Group. “We like mobile-related service providers like messaging, location-based and M2M firms, fiber service and enterprise data center providers,” Tirabassi said. Many of the top 10 venture capital telecom deals in Q1 are related to wireless services, the NVCA report showed. There are potential deals in the consumer VoIP market, but due to competition, the return on investment perspective might not be bright, he said. Services that help companies reduce cost seemed to be investors’ favorites: The $15 million investment in telepresence provider Vidyo is the top deal in Q1, NVCA said.
Venture investors also hope to back some stimulus applicants. Almost all of MC Venture Partner’s portfolio companies have been very active in seeking the stimulus money, Tirabassi said. That could mean future venture investments in the broadband space and rural areas, he said. Investors are also tracking IT security and infrastructure companies which might grab some stimulus funds, Fitzgerald said.
Investors also care about the FCC forbearance proceeding and special access policies, Tirabassi said. Venture capitalists like MV Venture Partners want regulations that allow new market entrants to compete without complications from the incumbents like AT&T, he said. AT&T’s officials had said the Obama administration’s focus on broadband deployment and resulting job growth weighs against regulation of special access prices (CD June 23 P2). They argued that without more data from all players, the FCC has no way of knowing whether the special access market is competitive.
Meanwhile, investors intend to move away from traditional, maturing industries like semiconductors and telecom, and toward emerging opportunities like clean technology and medical devices, said the 2009 Global Venture Capital Survey by accounting firm Deloitte Touche Tohmatsu and NVCA. Some 63 percent of venture capitalists surveyed said they expect to boost their investments in clean technology over the next three years, while 37 percent planned to ratchet up investment in medical devices.