Paul Weinstein, a general partner at Azure Capital Partners in San Francisco, says that one way the early-stage venture capital firm differs from others is that he and colleagues perform primary research on potential markets for investment along the lines of what they did during their days with financial giant Credit Suisse First Boston. Weinstein, who says his company has a little over $500 million under management and concentrates on communications and software from consumer applications to core infrastructure, serves on the boards of BroadLight, Fonality and World Wide Packets. He spoke with Executive News Editor Bob Brown about why Azure puts its money where it does.

What's your approach to investing in the VoIP market?

We look at the VoIP market being segmented into consumer, small business and large enterprise. When we did the analysis the thing that stood out about the enterprise market is that it was dominated by large players like Avaya, Cisco, Nortel and a few others. Large enterprises tend to make VoIP decisions in the context of an overall architecture decision related to their data products as well. When you're selling into that market it's helpful to have a legacy in your product set. It might not be the ideal place for entering with a venture-backed startup since the market is dominated by distribution and access to those large partners.

So we looked at the small business and consumer markets. On the consumer side, we saw it trending toward being a service. We looked at a lot of service and equipment providers and came away concerned that the business model didn't support enough margin for smaller players. We looked at [mobile virtual network operators (MVNO)] and other ways to get into that market.

On the small and medium business side, we've been in Sylantro [Systems] for a long time, which focuses on that market as well as on carriers that want to offer Centrex-like services to that market. We also looked at people who want premises-based solutions, which is where we came up with Fonality. It's an open-source-based IP telephony company capable of selling a PBX over the phone. Their price points are $5,000 to $7,000 for full PBX functionality.

That small business market is a multibillion-dollar one dominated by no one. There are lots of players in that SOHO market - Cisco, Nortel, Mitel, Avaya - but much more fragmented than the enterprise market. With the profile of companies we looked at we felt it would be easier for them to target and attack that market.