About the best thing that can be said about the latest numbers on network
and software industry venture-capital investing is that they are still
bigger than in most other industries.
Software remained the leading industry with $790 million invested in
166 companies during the first quarter, down 13% from fourth quarter,
according to the PricewaterhouseCoopers/Thomson Venture Economics/National
Venture Capital Association MoneyTree Survey.
Telecommunications remained the number three industry with $485 million
invested in 67 companies, down 11% from the fourth quarter. Networking
followed as the fourth-biggest category, with $430 million going to 38
companies, according to the survey.
Overall venture funding in the first quarter added up to $3.8 billion
in 623 companies, down from $4.3 billion in 726 companies in the fourth
quarter. The first-quarter dollar amount was the lowest quarterly funding
total in five years, the survey showed. The number of companies invested
in was the lowest in six years.
Venture firms invested in 158 early-stage companies, about the same as
in the fourth quarter, the survey said. There was a slight uptick in investing
in late stage companies, those that venture firms arent ready to
give up on but that dont have immediate exit strategies, such as
going public or getting bought.
Given IT spending cutbacks by enterprises and carriers, VCs have become
more cautious in general about investing in network start-ups. The poor
economy and concerns about the war havent helped.
In a statement, Tracy Lefteroff, global managing partner of the venture
capital practice at PricewaterhouseCoopers, said: The reality is
that venture capital will not lead the economy out of this slump. It will
follow it out. Restoration of global stability appears to be underway.
But, until the public markets and liquidity opportunities show signs of
sustainable improvement, venture capital will not rebound.
This is all not to say that venture capitalists have gone into hiding.
William Quigley, a managing director with Clearstone Venture Partners
in Santa Monica, Calif., took in this weeks NetWorld+Interop 2003
in Las Vegas to scout out interesting companies and technologies.
I find voice over 802.11 wireless LANs intriguing; there are opportunities
but also problems to solve in that area, he said. Companies
could save themselves a lot of money on cell phone calls.
Quigley also cited multifunction security boxes as promising.
Ipsum, a Philadelphia-based start-up selling net management appliances,
is among the relatively few network companies to get funding recently.
It secured $6 million in second-round funding from Rho Ventures and Sevin
Rosen Funds; the company announced $1.5 million in seed funding in August
Frank Hayes, the companys vice president of marketing and business
development, says Ipsum was able to secure funding largely by differentiating
its technology from other management vendors. Ipsum's products, a server
and probes, are designed to monitor routing protocols to detect faults
and gauge service levels. The trick now is staying lean -- the company
has just 20 employees -- while ramping up for May general availability
of its products. One way the company accomplished that was by doing the
rounds at Interop, but without renting a booth