NEW YORK-As 1999 debuts, wireless companies seeking to raise money should be encouraged by
news the venture capital market is flush with cash and ripe for picking.
“On the private-equity side, there is
more competition to finance deals (because) there is so much money out there,” said Karl Khoury, a principal of
Columbia Capital Corp., Alexandria, Va.
There was a record-setting overall venture capital investment of $3.77
billion during the third quarter of 1998.
“There is a growing oversupply of private equity in North
America,” said Ronald White, manager of Boston-based GSM Capital.
Telecommunications also is getting a
big chunk of this growing pie. Of that $3.77 billion invested, the communications sector received $931 million, or
nearly 25 percent, he said.
“Private equity is always opportunistic,” Khoury said.
“It steps in
during periods (like this one) of disparity between the debt markets-where there is an oversupply and low rates-and the
(public) equity markets, where companies are getting hammered by competition and a turnaround in
valuations.”
The wireless telecommunications industry is very attractive to venture capital investors because it
promises high growth over the long term.
“Asset values can be leveraged up even before companies are cash-
flow positive, and there are some proven success stories, like Western Wireless (Corp.),” Khoury
said.
Columbia Capital still sees good opportunities to invest in service providers. As the number of carrier
competitors declines, the size of individual investments in them is increasing.
“Wireless is no longer seen as
an end game but is becoming part of a suite of services that makes convergent carriers more competitive. Islands don’t
work amid one-rate plans on either side,” Khoury said.
At the other end of the financing spectrum, Columbia
also is looking at making smaller, strategic investments in companies offering “good underlying technologies to
make carriers more competitive-routers, switches, next generation,” he said.
Likewise, White said GSM
Capital is looking to invest in “products and services which enhance operators’ ability to compete in their markets
with differentiated services, encourage increased network utilization and dependence, lower the cost threshold to
deliver new services, (and) facilitate entry into new markets.”
Companies seeking venture capital financing
also may find their task easier than before because of the increasing prominence of private equity funds that specialize
by industry sector.
“We are raising $300 million for a fund dedicated to communications and information
technology from university endowments, pension funds and fund of funds managers, (which is) outsourcing of funds
management, a trend becoming huge in the United States,” Khoury said.
“Institutional investors are
demanding that we be specialized so that we really understand all aspects of an industry.”
Similarly, the $137
million GSM Capital fund was established to focus investments exclusively on wireless products and services, White
said.
GSM Capital is backed in part by nine wireless telecommunications carriers based in Asia, Europe and North
America.
As of mid-December, it had $47 million in completed or pending commitments to development-stage
companies, and its average initial investment was $3.7 million.
