Follow the money

It's all about the money. The business of financing carrier and vendor start-ups has never been bigger, more successful or more in the spotlight than right now. Nor have the roles or the sphere of influence of moneyed individuals and firms been more evident.

You could say this is because of deregulation. Financiers of every stripe now have more reason to look at the telecom industry and see green fields for investment where they used to see only boring telco stocks, boring telco debt, no chance of discovery. Likewise, cash cow telcos and giant vendors didn't need anyone's money. No need for seed.

But now, competition provides the chance to bet on someone else. There is a new need for seed capital and funding afterward. And there are IPOs for the first time since anyone can remember. Technology acronyms such as DSL have become hot words on Wall Street. Who would have thought?

It is risky, for certain, betting on these newer companies, but some of that risk is mitigated by the fact that many of these companies are acquiring experienced management directly from those earlier generation cash cow telcos.

A lot of the financing excitement has to do with technology. With every phase and function of daily life now being affected in some way by the Internet, a higher value has been placed on finding the technologies that will perfect the Internet. So, the newest generation of telecom vendors enjoys a kind of financial success that even long-standing, big-name vendors have not. Though irrational inflation of such new vendor stocks is rampant, the paper billions surrounding these companies reflects both the excitement of the sector and the critical positioning of their technologies. That is why Redback Networks' stock has been worth $200 per share more than Lucent Technologies', why Sycamore Networks' has hovered nearly $200 higher than Cisco Systems' and why Akamai's IPO made its founder a billionaire in less than a few hours.

The financial people are at play in the fields of telecom. Venture capitalists, bankers, securities firms, institutional and individual investors are all digging for the next gem, overturning every rock in Silicon Valley, Boston and New Jersey, hoping to find another Nextlink or Redback.

The frenzy has even led to a kind of end-to-end investing - you invest in a carrier who leads you to all the interesting little vendors it works with, most of whom need money and have dreams of going public or getting bought. This strategy gives new meaning to connecting the dots.

Telecom is drenched in new money. But, that isn't the whole story. Not only is money playing a bigger, more noticeable role in the industry, but the bestowers of money seem to be all-important. Talk to new carrier or vendor executives these days, and it doesn't take long for them to say who's financing the company or who's helping them find financing. Names such as Battery Ventures, Spectrum Equity Investors or Legg Mason and others are badges of honor. Furthermore, those financiers are the first outside board members for most of these companies, and they often help choose the rest of the board and draft new management team members.

When it comes to the operation, of course, the bankers sit back and let the new telco managers do their thing. But their voices are heard every so often, commenting on everything from technology development to deregulation legislation. They add a new wrinkle to the industry's character - you might call it a sense of accountability that the traditional telecom industry never had.

Along with customers, they have become some of the most important voices of influence to which telecom companies must answer.