With 2003 marking the lowest venture-capital investment levels for the network and telecom sectors in recent years, these categories could certainly benefit from an increase in corporate IT spending.
While large public companies such as Cisco and Lucent say they are starting to feel the positive effects of rebounding IT budgets, smaller private companies in networking and telecom haven't yet experienced a significant uptick in sales. In addition, investors are still somewhat leery of these sectors after having poured billions of dollars into network and telecom start-ups in 1999 and 2000 only to be burned by most of them.
Telecom companies received $2 billion in 259 deals last year, making it the third-largest sector for investments, behind biotechnology and software, according to the most recent PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey.
The survey defines telecom companies as long-distance providers, local exchange carriers, wireless service providers, component makers, and satellite and microwave service and equipment providers. Network companies, defined as makers of switches, hubs, routers and network management products, followed in fourth place with 180 deals, totaling $1.7 billion last year. While still significant, investments in these areas have fallen sharply from their historic highs of just a few years ago.
"I think we bottomed out" in 2003, says Tracy Lefteroff, global managing partner of PricewaterhouseCoopers' Venture Capital & Private Equity Practice, about the network and telecom sectors. "There's been a pickup in corporate IT spending, but it hasn't trickled down to the start-up level. [Large] networking companies haven't rebounded enough to make acquisitions, but we are starting to see movement."
In 2003, the majority of venture capital investments in these two categories went to improving existing portfolio companies that make VoIP, Wi-Fi and broadband products and services, Lefteroff adds.
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