VC Drops in the Bucket

The free-flowing fountain of venture capital may have turned to a dripping spigot for some technology companies. But, wireless is still a good bet.

In 2Q01, 116 wireless companies received venture funding, totaling $898 million. This represented 10% of all investments. Although 2001 dollar totals are down, wireless continues to drive the same percentage share of grants.

“You're not going to see companies go public with no revenue, or losing massive amounts of dollars, like you saw in '99-'00,” said Bruce Sachs, Charles River Ventures partner. The typical 5-year liquidity expectations shrank to 2-year periods during the dot.com era. Now that the bubble has burst, companies are returning to the more traditional economics.

Sachs currently oversees investments in four wireless companies: Flarion, which focuses on mobile broadband chip development; WaterCove Networks, which offers IP edge wireless network equipment; Celeritas, which specializes in free-space optics to remote base-station antennas; and InOvate Communications Group, which nurtures new tech companies. A principal of the company is Craig Farrill, former Airtouch CTO.

“VCs are like flies,” Farrill said. “They go where the sweets are.”

Before the delta, according to Farrill, every good idea resulted in at least 10 smaller companies obtaining funding. Today, VCs take their due diligence more seriously.

Take Bluetooth. Although there have been hundreds of companies with applications, there are a finite number that received funding in 3Q01, according to Rajeev Chand, Rutberg & Company equity research analyst.

In many ways, the tech bust has forced VC funding to return to the basics. Farrill said new enterprises have to make their market offerings clear and back them up with solid business plan. But in the end, the product that wins solves a real “pain point” for the carrier.

No pain, no gain.