Optical Investment Expected to Slow
Fourth-quarter statistics compiled by the newly formed partnership of PriceWaterhouseCoopers' MoneyTree Survey and VentureOne showed a 9 percent increase in funding for fiber optics and photonics concerns through the end of 2000, a year that smashed all records for overall venture outlays.
Overall venture investments for the fourth quarter of 2000 totaled $13.7 billion, a drop of 18 percent from the nearly $16.8 billion total invested in the previous three months, according to the MoneyTree survey. Though the venture-investment totals have been declining for three straight quarters, the dropoff suggests more of a mesa than a valley to market analysts.
"There's still a lot of money around, and you've got to put that money somewhere," says Tracy Lefteroff, global managing partner for PWC's venture capital practice. Though the perception may be that the venture market is drying up, Lefteroff says it's merely finding a level mark.
"I think overall, we are reaching a plateau [for venture investing]," Lefteroff says. "If you look at the yearly total for 2000, it's a lot higher than 1999. The amount of cash out there is still pretty good."
Venture capitalists concurred, saying the pace of optical investment is likely to moderate in 2001.
"I think we'll see a decline in [optical startups] funding for Q1 of 2001," predicts Chris Schaepe, partner at Lightspeed Venture Partners (Disclosure: Lightspeed is an investor in Light Reading). "The optical field in general is pretty saturated. And any time you have an area that's taken in so much investment, it's usually followed by a time when the market pauses for digestion."
Venture capital firms are becoming pickier in where they place their bets in the optical arena, taking advantage of the tightened public markets to increase the valuations their investments can buy. Wes Raffel, a partner at Advanced Technology Ventures, says many VCs are especially hesitant about jumping into later rounds of financing, simply because they can.
"What we're finding is that [VCs] are waiting, because right now if they wait, the [valuations] go lower," says Raffel, who participated in a venture-capital panel discussion at an optical startups conference in Santa Clara on Tuesday.
Lightspeed's Schaepe says that most venture-capital concerns have good optical positions in their portfolios and can therefore afford to be choosier going forward (see Optical VCs Grow Wary).
"Nobody's playing catchup anymore," Schaepe says. "All the areas, even components, are heavily invested now. I don't think there are many green-field opportunities left."
PWC's Lefteroff, however, doesn't think the IT infrastructure sectors, of which optical is a part, will decline as rapidly as pure-play Internet and e-commerce investments, which are now almost nonexistent, after accounting for more than 90 percent of all venture investments a year ago.
"There's not going to be a quick up and down" in optical investing," says Lefteroff, who predicts a gradual decline, rather than a dotcom-like implosion. "Optical companies in general do have intellectual property, and do have products. Over time, there will only be a few survivors, but it will probably be more like the early days of the PC business or disk-drive markets [which declined slowly]."
According to the MoneyTree survey, venture investments totaled $68.8 billion in 2000, an 80 percent increase from 1999. Internet companies of all stripes accounted for $56.9 billion of the 2000 total. PriceWaterhouse Coopers and VentureOne expect to release detailed sector investment figures later this month.
-- Paul Kapustka, editor at large, Light Reading http://www.lightreading.com