Search /
Advanced search  |  Help  |  Site map
Click for Layer 8! No, really, click NOW!
Networking for Small Business
Where's my gigabit Internet, anyway?
How a cyber cop patrols the underworld of e-commerce
For Red Hat, it's RHEL and then…?
Will the Internet of Things Become the Internet of Broken Things?
Kill switches coming to iPhone, Android, Windows devices in 2015
Israeli start-up, working with GE, out to detect Stuxnet-like attacks
Galaxy S5 deep-dive review: Long on hype, short on delivery
Google revenue jumps 19 percent but still disappoints
Windows XP's retirement turns into major security project for Chinese firm
Teen arrested in Heartbleed attack against Canadian tax site
Still deploying 11n Wi-Fi?  You might want to think again
Collaboration 2.0: Old meets new
9 Things You Need to Know Before You Store Data in the Cloud
Can Heartbleed be used in DDoS attacks?
Secure browsers offer alternatives to Chrome, IE and Firefox
Linksys WRT1900AC Wi-Fi router: Faster than anything we've tested
Heartbleed bug is irritating McAfee, Symantec, Kaspersky Lab
10 Hot Hadoop Startups to Watch
Server makers rushing out Heartbleed patches
Fortinet, McAfee, Trend Micro, Symantec, Bitdefender battle in socially-engineered malware prevention test
Net neutrality ruling complicates US transition to IP networks
6 Social Media Mistakes That Will Kill Your Career
Canonical's new Ubuntu focuses on the long haul
4 Qualities to Look for in a Data Scientist
Big bucks going to universities to solve pressing cybersecurity issues

Telecom reform, 'Net fuel venture funding

Today's breaking news
Send to a friendFeedback

Network startups fueled a record amount of venture capital investments during the third quarter, according to an exclusive Price Waterhouse/Network World survey.

Driving high-tech investment activity are start-ups attempting to exploit markets opened up by telecom reform, Internet companies receiving later-stage funding and all manner of wireless product and server vendors.

Total investments in all start-ups in this year's third quarter reached $3.57 billion, topping the previous high of $3.18 billion, reported in the second quarter, according to the Price Waterhouse Venture Capital Survey released last Thursday.

Of the 675 companies receiving venture funding in the third quarter, 168 reported a network technology element in their business.

Those firms were given $933 million in funding, about 41% of the $2.25 billion total invested in high-tech firms.

Among the types of companies drawing the most interest from investors in the third quarter were wireless communication vendors, high-speed switch and router providers (YAGO Systems, Inc. grabbed $4.9 million and Foundry Networks, Inc. bagged $9 million) and remote access upstarts (RAScom, Inc. snagged $10 million and New Oak Communications, Inc. is $7.5 million richer).

Also hot were Internet access and software start-ups, such as Sitara Networks, Inc., which received $7 million in second-round funding to help deliver its software for speeding Web site access. Other emerging Internet markets include electronic commerce products and software for bringing legacy applications to the 'Net.

Investments in communications companies, including firms that sell hardware such as switches and routers or provide services such as remote access and local phone service, topped software investments last quarter for the first time, $797 million to $794 million. Usually, "communications is about 20% below software," said Kirk Walden, Price Waterhouse Venture Capital Survey director.

Start-ups spawned by telecom reform clearly are driving the communications category as a whole," he said.

The main reason for the rush of activity in telecommunications is the market created by the 1996 federal law forcing local carriers to allow competition.

"Telecom reform opened up a $100 billion market that before was totally monopolized," said Todd Dagres, a partner at Battery Ventures, a venture capital firm in Wellesley, Mass. "Twenty percent of that market will go to competitive local exchange carriers. That's $20 billion over the next five years."

Battery Ventures invested in two local exchange start-ups in the third quarter - XCOM Technologies, Inc. of Cambridge, Mass. and Allegiance Telecom, Inc. of Dallas.

These phone networks are largely aimed at carrying Internet and corporate data traffic, Dagres said. "That's why second lines are being added, and why higher performance access is required, and why bigger backbones are needed," he said.

Telecom companies also at-tracted some of the largest venture investments in the third quarter because of the high costs of gaining a foothold in that sector.

"Some of the telecom start-ups, such as fiber-optic companies, require a chunk of money," Walden said. "You're not talking about a $5 million seed investment like you'd see with a software start-up."

For example, Formus Communications, Inc., of Englewood, Colo., a developer of broadband wireless systems, received $30 million in first-round funding from four different venture firms. And Allegiance Telecom was given $19 million in second-round capital from Battery Ventures and three other partners.

In contrast, early-stage start-ups overall averaged $4 million each.

Apply for your free subscription to Network World. Click here. Or get Network World delivered in PDF each week.

Get Copyright Clearance
Request a reprint or permission to use this article.

NWFusion offers more than 40 FREE technology-specific email newsletters in key network technology areas such as NSM, VPNs, Convergence, Security and more.
Click here to sign up!
New Event - WANs: Optimizing Your Network Now.
Hear from the experts about the innovations that are already starting to shake up the WAN world. Free Network World Technology Tour and Expo in Dallas, San Francisco, Washington DC, and New York.
Attend FREE
Your FREE Network World subscription will also include breaking news and information on wireless, storage, infrastructure, carriers and SPs, enterprise applications, videoconferencing, plus product reviews, technology insiders, management surveys and technology updates - GET IT NOW.