* Venture capital investments: Steady as she goes
Venture capital firms continue to see promise in telecommunications start-ups.
During the first quarter of 2004, venture capital investments in the telecommunications industry topped $547 million, according to the MoneyTree Survey, a leading source of information about venture capital investments in the U.S. PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association compile this quarterly survey.
The MoneyTree Survey, which was released last week, identified 65 telecom start-ups that received venture financing in the first quarter, with an average deal size of approximately $8.3 million. These figures are up slightly from the fourth quarter of 2003 in terms of both dollars invested and the number of deals closed.
Indeed, the telecommunications industry ranked third in terms of overall dollars invested during the first quarter of 2004. At the top of the survey was the software industry, which received $946 million invested in 162 companies. In second place was the biotech industry, which accounted for $943 million that was invested in 71 companies.
Overall, venture capital firms invested $4.6 billion in 618 start-ups during the first quarter of 2004. That figure is down slightly from the $5.2 billion invested in the fourth quarter of 2002, but it is above the $4.2 billion invested in the first quarter of 2003. For the last seven quarters, venture capital investments in the U.S. have been hovering between $4.2 billion and $5.2 billion, according to the MoneyTree Survey.
“We like what we’re seeing,” says Tracy Lefteroff, global managing partner, Venture Capital & Private Equity Practice at PricewaterhouseCoopers. “We see solid levels of investment, and the public markets seem to be more receptive [to liquidity events.]”
Lefteroff says IPOs continue to take place – including Google’s much-anticipated IPO – and that both the telecommunications and IT services sectors are “showing signs of life.”
One area where telecommunications start-ups are showing signs of life is in first-time financings. This statistic refers to when companies receive their first-ever round of venture capital investment.
In the first quarter, 11 telecommunications start-ups received $82 million in first-time financings, the MoneyTree Survey found. This level of investment comes on the heels of $98 million in first-time financings for 18 telecommunications start-ups in the previous quarter. These figures are more than double the amount of first-time financings that took place in the telecommunications sector during the first three quarters of 2003.
In terms of first-round financings – a key metric that shows innovation of an industry segment – the telecommunications industry was fourth overall, behind software, biotechnology and semiconductors.
“Of the 11 telecom companies that received first-time financing, almost all of them were in wireless,” Lefteroff says.
Venture capitalists say the trends outlined in the MoneyTree Survey are a sign that more careful investing is occurring now than during the telecom industry’s heydays of 1999 and 2000. These trends should mean that today’s telecom start-ups are higher-quality companies and more mature than entrepreneurial ventures funded several years ago.
“Venture capital firms are spending far more time finding quality companies to invest in,” says Ted Schlein of Kleiner, Perkins, Caulfield, Byers. Kleiner, Perkins is an investor in telecom start-ups such as WildBlue Communications, a provider of wireless high-speed Internet access, and OnFiber, a provider of metropolitan area optical services. “The dollars in each financing is down and the time between each round of financing is going up. That’s the result of venture discipline.”
Next week: More details about the service providers getting venture financing.
