VCs hold steady on network investments

Venture capital firms held steady with their investments in the network industry during the third quarter of 2005, according to the latest figures from the MoneyTree Survey compiled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Altogether, venture capital firms invested $2.5 billion in 350 network industry deals during the just-finished quarter, the survey says. This compares to $2.3 billion invested in 346 deals during the third quarter of 2004.

Venture capital investing in network industry start-ups has ranged between $2.5 billion and $3.2 billion for the last 14 quarters. This steady level of investing in recent years compares to a peak of $17 billion invested in the second and third quarters of 2000, at the height of the Internet boom.

The hottest areas for investing continue to be wireless communications, IP equipment and security software.

Among the largest deals of the quarter were:

* $150 million invested in FiberTower, a San Francisco company that designs wireless networks consisting of fiber rings.

* $70 million invested in Visto, a Redwood City, Calif. company that provides mobile messaging solutions to mobile operators.

* $40.6 million invested in Force10 Networks, a Milpitas, Calif. company that is developing next-generation routing and switching equipment.

* $30 million invested in Alloptic, a Livermore, Calif. company that develops fiber optics for local access networks.

* $25 million invested in SunRocket, a Vienna, Va.  Internet-based telephony service provider. 

Within the telecommunications industry, the wireless subcategory was strongest with $455 million invested – a four-year high, according to the MoneyTree Survey. The two largest deals of the quarter were wireless-related companies.

Investments in all telecommunications start-ups, including wireless, totaled $605 million for the quarter. First-time telecommunications investing reached a four-year high with 26 deals completed, most in the wireless area.

Of the 350 deals, 89 of them – or 25% – were first-round investments, which shows that venture capital firms are interested in early start-ups as well as continuing to fund older investments. The two biggest network deals of the quarter show this trend, with the $150 million FiberTower investment being a second-round investment, while the $70 million Visto deal is an 11th-round investment.