Wireless dominates Q4 venture capital deals

Investments in wireless service providers were among the largest venture capital deals of the fourth quarter of 2005, according to the latest numbers from the MoneyTree Survey compiled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Of the top 10 network industry deals of the fourth quarter of 2005, four were investments in wireless start-ups. These include a $50 million investment in MetroPCS, a Dallas wireless service provider, and a $43 million investment in Amp’d Mobile, a Beverly Hills, Calif. provider of mobile entertainment services.

The consumer market rather than the enterprise market is driving investments in wireless service providers, says Kirk Walden, national director of venture capital research PricewaterhouseCoopers.

“The sheer scale of the consumer opportunity is far greater than any pure business opportunity,” Walden explains. “That translates into the possibility of big revenue, and that’s really attractive to venture capital firms.”

However, business customers of wireless services are likely to benefit from venture-funded breakthroughs in mobile communications technologies.

“The more pervasive the technology becomes, the easier it is for the enterprise to make selections for the future,” Walden says. “But it also sets expectations for the enterprise user: If I can have this capability as a consumer, why can’t I have it at work?”

Overall, the wireless segment of the telecommunications industry accounted for $366 million in venture capital investments in the fourth quarter of 2005.

The five biggest wireless deals of the quarter were:

1. Metro PCS, a Dallas wireless PCS service provider, received $50 million in its 13th round of funding. Overall, Metro PCS has raised $414 million since 1995.

2. Amp’d Mobile, a Beverly Hills provider of entertainment services via broadband wireless, received $43 million in its second round of financing. Amp’d Mobile raised another $50 million in January 2006 with funding from MTV among other investors.

3. MFORMA Group, a San Francisco provider of wireless entertainment services, received $30 million in its third rounding of financing. With its focus on online gaming, MFORMA has raised $94 million since 2004.

4. Firefly Mobile, a Lincolnshire, Ill., provider of mobile phones for children, received $26 million in its second round of financing. Firefly raised a total of $35 million in 2005.

5. JumpTap, a Cambridge, Mass., provider of carrier-branded mobile search services, received $21 million in its first round of financing.

“The wireless numbers that we are reporting are just specifically wireless service providers and their suppliers as a subset of the telecommunications market,” Walden says. “Our figures don’t include the software that enables you to download ring tones or provide remote access security. What we’re looking at with the wireless data is the tip of the iceberg. We can’t get our hands around the real number that would include everything related to wireless networking.”

Wireless was among the hottest areas of venture capital investing for 2005. Wireless investments jumped to a four-year high of $1.3 billion in 2005, up from $1.1 billion in 2004. In 2005, venture firms invested in 152 wireless-related companies, including service providers and component manufacturers.

Indeed, wireless investments drove up the figures for the overall telecommunications area. Wireless represented more than half of the total investment in telecommunications, which reached a three-year high of $2.1 billion in 2005.

“Wireless has been creeping up quarterly,” Walden says. “It was $184 million in the first quarter of 2005, $318 million in the second quarter and $470 million in the third quarter. The fourth quarter dropped down to $366 million.”

Overall, venture capital firms invested $2.248 billion in the network industry during the fourth quarter of 2005. This amount includes investments in 350 start-ups specializing in telecommunications, software and network equipment.

See Network World’s special cut of the MoneyTree Survey here.