NEW YORK-The telecom/wireless sector of U.S. industry stood out last year, riding high on an overall rising tide of venture capital investments, according to PricewaterhouseCoopers’ “MoneyTree Survey.”
Taken in aggregate, venture-backed investments in domestic companies during 1999 shattered all previous records, with 4,006 firms receiving a total of $35.6 billion. Investments during the last quarter alone exceeded the full 1998 amount. The full-year total represents a 150-percent increase over the previous high of $14.2 billion set in 1998.
“Technology in general and the Internet in particular are entirely responsible for the increase,” said Paul Weaver, chairman of PWC’s Global Technology Industry Group.
Technology-based companies, including Internet-related businesses, accounted for more than 90 percent of all investments in 1999.
“A solid U.S. economy, a sensitive but not wildly volatile stock market, a receptive though selective [initial public offering] market, combined with the ever-expanding opportunities for technology, create an ideal environment for venture capitalists and entrepreneurs alike,” according to survey results.
Furthermore, investments in telecom/wireless during 1999 exceeded the total amount invested in this area in all of the last three years combined, Walden said.
In the last quarter of 1999, investments in telecom/wireless totaled $3.45 billion, nearly quadruple the amount recorded during the same period of 1998. For three consecutive quarters, venture capital investments in this sector have at least tripled.
Overall, 1,271 companies in all industries received a total of $14.69 billion during the last quarter of 1999, a 302-percent increase over the year-ago quarter. Of these, 172 were in the telecom/wireless sector.
Average funding for each of the 172 was $20.1 million, up from $12.8 million during the third quarter of 1999 and $7.9 million a year earlier. By comparison, average funding for all companies was $8.9 million in 1999, a 71-percent increase compared with the average of $5.2 million in 1998.
“The increase continues to reflect the large capital needs for companies in the later stages of development to continue the fast-paced growth necessary to succeed in industry,” Walden said.
At the same time, he noted that approximately one-third of the 172 telecom/wireless companies receiving venture capital funding last quarter were in their formative stages, having received either seed capital or first-round financing. This represents the fourth consecutive quarter that early-stage companies have comprised such a large percentage of the total invested.
“Venture capitalists continue to show their confidence in the sector by investing in these start-ups, thus filling the pipeline with companies of the future,” Walden said.
The largest telecom/wireless venture capital investment was a $213.4 million second-stage financing for Corvis Corp., a Columbia, Md., manufacturer specializing in optical switching, transport and network-management solutions.
“While the largest deal was in an equipment manufacturer, significant investments were made in [digital subscriber line] service providers, [competitive local exchange carriers], integrated communications providers, broadband transmission technology and telecommunications software companies,” Walden said.
Equipment manufacturers also garnered smaller venture capital investments, like the $1.6 million in bridge financing provided to SCS Corp., a San Diego provider of wireless data communications systems.
The impact of the Internet on wireless communications was apparent in venture investments like the $3.5 million in first-round financing for Traq Wireless Inc., an Austin, Texas, builder of Web-based wireless-management services for businesses. Likewise, @mobile.com, formerly Global Mobility Systems Inc., Bellevue, Wash., received $2 million in third-round financing for its applications service provider role, permitting wireless carriers to integrate Web-based content and link it to handsets enabled with Wireless Application Protocol technology.
Among the smaller venture capital investments in carriers last quarter was a $1.3 million bridge-round financing for ReadyCom Inc., a two-way voice paging services provider based in Chapel Hill, N.C.
Other carriers to receive venture backing included VelaCom Inc. of Englewood, Colo., a majority owner of a partnership owning two wireless licenses in Brazil, $45 million in second-stage financing; Suretel Inc., formerly Southwest PCS, of Oklahoma City, $14 million in mezzanine financing; MetroPCS Inc., formerly General Wireless Inc., of Dallas, $1 million in bridge financing.
The latest PricewaterhouseCoopers “MoneyTree Survey” comprised the responses of 538 venture capitalists and the 398 co-investors they identified. Further information about the survey can be obtained at www.pwcmoneytree.com.
