by CIO Staff

Record VC Funds Go to Wireless

Oct 26, 20053 mins
MobileSmall and Medium Business

Venture-capital investments in companies with products or services related to wireless technology reached a four-year high of US$455 million during the third quarter, according to a report released Tuesday.

During the first three quarters of this year, 114 wireless-related companies saw $984 million in investments, compared to 135 companies garnering $1.1 billion during the entire year of 2004, according to the MoneyTree Survey released by PricewaterhouseCoopers, Thomson Venture Economics, and the National Venture Capital Association (NVCA).

The two largest deals made during the third quarter were with wireless-related companies, the survey reports. FiberTower, which builds backhaul networks based on microwave technology that connect cell towers to central offices, topped the charts with $150 million. Wireless messaging application and service provider Visto received $70 million. Both were later-stage deals.

For the overall telecommunications sector, there were 65 deals done in the third quarter totaling $605 million. The producers of the MoneyTree Survey say telecommunications is on track to finish out the year at a three-year high in terms of investments.

Following a jump in the second quarter to $477 million, investments in networking companies came back to historical levels in the third quarter, totaling $339 million in 34 companies.

In general, venture investing during the third quarter was down 13 percent from the second quarter to $5.3 billion in 714 companies, but up 12 percent from the same quarter last year, says Mary MacDonald, vice president of investment banking with Thomson Venture Economics. “The amount of dollars invested have been fluctuating for the past few years; this falls right in the middle of the band,” she says.

Other companies that made the top 10 investments list for the quarter include RFID equipment maker Alien Technology with $67 million, investment management software maker Strategic Financial Solutions with $63 million, and 10 Gigabit Ethernet equipment maker Force10 Networks with $41 million.

This year has not seen the up tick in early-stage investments – which the survey defines as companies that have been in business around three years and are still testing products – that had been expected, says Mark Heesen, president of NVCA. For the third quarter, 30 percent of all deals were characterized as early stage, in line with percentages over the past few years.

However, later-stage deals comprised roughly half of the investments made during the third quarter. This could be attributed to more mature companies that would have planned public offerings in a more favorable market are instead seeking additional investment while they wait for IPO conditions to become more favorable, Heesen says.

By Cara Garretson, Network World