Venture capitalists shift focus to wireless communications
November 9, 2000
© 2000 LocalBusiness.com
By Andrew Robins
LOS ANGELES, Nov. 9 (LocalBusiness.com) -- Venture capitalists who have been bullish on the dot-com industry are now backing off from the sector.
"There was a period of collective insanity in 1999 when traditional metrics were relaxed," noted William Quigley, managing director of venture capital firm idealab! Capital Partners. "Companies with a slim chance of becoming profitable went public."
Now, with few exceptions, companies must become profitable before entering the public markets, and dot-coms face much more rigorous investor scrutiny compared with a year ago. "We would have taken a much more serious look at (dot-coms) in 1999, when there was an opportunity for a smart, nimble team to carve out a niche," Quigley explained. "That's changed a bit."
Fortune 500 companies who were initially hesitant to jump into the Internet arena have now become more educated about the rewards of establishing online businesses. "That will make it much more difficult for the smart, nimble team," Quigley predicted.
Today, Quigley, who works from the idealab! office in San Francisco, searches for value in wireless telecommunications companies.
"We look for any company that can increase the mobility of data," he said. "That is the Holy Grail now." Because venture capitalists are realizing that improving data transfer by building fiber-optic networks is costly, companies that are building high-speed wireless data networks are now among venture capitalists' favorites. "Those companies have a lower standard for when they must reach profitability," Quigley noted.
Another sector that is becoming a darling of venture capitalists is demand chain management. Such firms help companies communicate effectively with potential customers. One such company, which idealab! Capital Partners has not invested in to date, is Belmont, Calif.-based Asera, Inc.
Idealab! Capital Partners maintains offices in both the Bay Area and Southern California. Despite the third-quarter decline in venture capital funding to Southern California companies, Quigley projected that "Southern California will continue to expand in the number of venture-backed deals that get done."
In the third quarter, venture capital investments in Southern California companies dropped to $1.9 billion from $2.7 billion the previous quarter. But, Quigley dismissed the third-quarter drop in venture financing as ephemeral. Such a short-term trend is probably the result of large financings being completed early this year just prior to the third quarter, he speculated.
While Silicon Valley has traditionally been viewed by investors as a high-tech hub where some of the brightest entrepreneurs launch their businesses, the rising cost of living in Northern California is beginning to stifle economic growth there, Quigley noticed.
"Entrepreneurs don't want to move up there," he said. "They can't afford it."
Highest VC investments in Q3
In Los Angeles, Santa Barbara and Ventura counties, these companies pulled in the most venture capital funding during the third quarter according to New Jersey-based Venture Economics:
* Agility Communications, Santa Barbara, $70 million.
* Edmunds.com, West Los Angeles, $68 million.
* Business.com, Santa Monica, $61 million.
* CyOptics, Inc., Los Angeles, $57 million.
* eConnections Inc., El Monte, $50 million.
* Need2Buy.com, Westlake Village, $43 million.
* Creative Planet (AKA Creative Planet Acquisition Corp.), Los Angeles, $38 million.
* GoWarehouse.com Inc., Santa Monica, $35.5 million.
* Internet Machines Corp., Agoura Hills, $30 million.
* iSuppli Inc., Santa Monica, $30 million.
* eStyle Inc. (AKA: Babystyle.com), Los Angeles, $25 million.
* Solus Micro Technologies (FKA:MEMSolutions, Inc), Westlake Village, $23.5 million.
* Prime Advantage Corp., El Segundo, $23 million.
* Sameday.com (FKA: Shipper.com), City of Industry, $20 million.
* Adexa, Inc. (FKA: Paragon Management Systems, Inc.), Los Angeles, $20 million.
* TelePacific Communications Inc. (FKA: U.S. TelePacific Corp), Los Angeles, $19 million.
* Nomadix Inc., Santa Monica, $17 million.
* Event411.com, Marina del Rey, $16 million.
* NXTV Inc., Woodland Hills, $15.5 million.
* Radical Communications (FKA: Streammedia.com LLC), Marina del Rey, $15 million.
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