Investment goes to wireless companies

Investor interest in funding wireless companies picked up significantly in 2005, and that momentum is expected to spill over into this year as customer demand for all things mobile continues to grow.

Browse a year's worth of data from the survey

Venture capital deals made with wireless companies in 2005's fourth quarter totaled $366 million, accounting for a little more than 16% of the $2.2 billion invested in networking-related companies overall, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. This group generates a special slice of its quarterly data for Network World that includes providers of computer and peripheral products, Internet communications, IT services, network gear, software and semiconductors.

To continue reading, register here and become an Insider. You'll get free access to premium content from CIO, Computerworld, CSO, InfoWorld, and Network World. See more Insider content or sign in.

Investor interest in funding wireless companies picked up significantly in 2005, and that momentum is expected to spill over into this year as customer demand for all things mobile continues to grow.

Browse a year's worth of data from the survey

Venture capital deals made with wireless companies in 2005's fourth quarter totaled $366 million, accounting for a little more than 16% of the $2.2 billion invested in networking-related companies overall, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. This group generates a special slice of its quarterly data for Network World that includes providers of computer and peripheral products, Internet communications, IT services, network gear, software and semiconductors.

For the year, wireless investments totaled $1.3 billion, or 13%, of all network-related investments, which totaled $10.4 billion. That total was up 13% from last year.

There's no one wireless technology or innovation fueling this interest, just insatiable customer demand, says Tracy Lefteroff, global managing partner of PricewaterhouseCooper's venture capital and private equity practice. "We continue to see interest in all the building blocks necessary for delivering things to mobile devices - from chips to handsets to interactive software and the content itself - they're all key elements in this wireless arena."

But with greater adoption of any technology comes challenges, and securing and managing wireless networks will be areas that start-ups focus on in 2006, one venture capitalist predicts.

"The challenge of end-to-end wireless security is huge," says Michael Skok, general partner with North Bridge Venture Partners. He also believes this year companies will come up with products that can monitor and manage from the core of wireless networks to the edge, as opposed to the piecemeal solutions in place today.

While software maintained its dominant position last year as the sector that received the most investments with $4.7 billion, that figure was down 10% from the amount poured into these companies in 2004, according to the report.

In 2006, companies that develop enterprise software are expected to continue to lose favor to those in the Web services arena, Lefteroff predicts. "Now, unless you're Oracle or Microsoft, [investors] don't view that you're going to be able to build a long-term sustainable company."

Instead, investors in 2005 looked to the Internet again to fuel innovative business models. According to the MoneyTree report, which defines the Internet sector as comprised of companies with business models that are fundamentally dependent on the Internet, investments made in those companies grew slowly over the last three years and totaled $2.9 billion in 2005.

This increase is due in part to the interest in Web 2.0 companies, or those that have found a way to build a sustainable business online, says Kate Mitchell, managing director with BA Venture Partners. The buzz around Web 2.0 companies and technologies is expected to sustain itself through 2006.

Read more about wireless & mobile in Network World's Wireless & Mobile section.