VC survey: Where are the ISP start-ups?

To paraphrase an old Pete Seeger song: Where have all the start-ups gone? After analyzing venture capital investments in the network industry during the first quarter of 2004, it seems clear to me that the ISP industry’s boom is a long time passing.

Not a single ISP was among the handful of network start-ups that received their first round of venture capital financing this year, according to the MoneyTree Survey, a leading source of information about venture capital activity in the U.S.

PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association compile the quarterly MoneyTree Survey. Network World receives a special subset of the survey data that includes investments in ISPs as well as network hardware and software suppliers.

The MoneyTree Survey identified 11 start-ups that received first round – or seed – financing. None of these start-ups was focused on offering Internet services.

Given the boom-and-bust cycle that the ISP industry experienced during the last few years, maybe it’s a good thing that venture capitalists are no longer interested in funding new service providers. After all, we already have tons of unused fiber in the ground from ISPs that overbuilt and then went out of business. Even today’s top-tier ISPs are not as profitable or stable as their multinational corporate customers would like to see.

However, I can’t help but wonder if the venture capital community’s lack of interest in ISP start-ups could undermine innovation in that industry. What new Internet services won’t be available in three or four years because entrepreneurs can’t get funding for their ideas? Maybe corporate customers would rather buy innovative IP services from existing carriers anyways.

What do you think about the lack of seed money for ISPs? Is it a problem or not? Send me your thoughts at mailtocmarsan@nww.com