Funding for startups

Startups Pray for M&A

Optical networking startups are looking to merge as a means of survival, and financial backers see a lucrative future in matchmaking them with appropriate partners.

So say representatives of the latest MoneyTree survey, which was recently published by PricewaterhouseCoopers, National Venture Capital Association, and Venture Economics and first described in Light Reading last month (see VC Activity Continues to Crawl).

"Consolidation presents more possibilities for startups," says David H. Jacobson, director of technology finance and investment banking at PricewaterhouseCoopers. "Companies might consolidate to get another round of funding where technology and business plans lend themselves to it."

Indeed, PWC, which often acts as a facilitator for financing arrangements between backers and startups, is studying likely pairings of new companies as a regular feature of its work with VCs, Jacobson says. Earlier this year, the firm helped a joint venture pick up the pieces of a failed Ottawa startup (see Zenastra Reborn?).

Jacobson says such instances of startups joining forces to get traction are likely to get more commonplace as the market evolves. What's more, traditional buyouts of startups by big players will gain momentum.

The numbers gathered by the MoneyTree survey seem to bear this out. As the telecom bubble burst last year, mergers and acquisitions became more popular than ever as a way of bringing startups to the next level:

As Jacobson notes, a major feature encouraging all kinds of M&A is the difficulty today’s startups have in getting new funding, which is forcing them to look harder at partnerships of all kinds.

Of the 2,900-odd companies started with VC funds in the “boom” period between July 1, 1999, and the end of 2000, 2,594 survived through 2001. Of those, more than 1,400 failed to attract new venture capital.

Additionally, more than 60 percent of the $6.288 billion the MoneyTree survey estimates VCs shelled out during the first quarter of 2002 went into expanding later-stage startups. That means lots of early-stagers will likely be reaching out to others to survive.

The M&A tack will likely look even more attractive to photonics firms, considering the paucity of funding in the sector: According to Jacobson and colleagues, venture investment in fiber optic networking technologies accounted about for about $173.4 million in venture capital funding during the first quarter. That figure represents 19 percent of the total networking and equipment investment by VCs, but just 2 percent of total venture investments for the quarter.

— Mary Jander, Senior Editor, Light Reading
fon_guy 12/4/2012 | 10:13:24 PM
re: Startups Pray for M&A Enough said.
GreatFallsNetworks 12/4/2012 | 10:13:23 PM
re: Startups Pray for M&A Companies like Cisco, Nortel, Lucent, Siemens
Alcatel will survive the downturn and buy smaller
and efficient ones when things improve. It will be
years at least 2 or 3 before such a thing will happen. The stock market will improve eventually and customer demands will happen when some new killer app comes into picture.
BobbyMax 12/4/2012 | 10:13:22 PM
re: Startups Pray for M&A It should be realized that start-ups as presnted by M&A specialists is too risky. These middle men cannot be trusted. We have seen a lot of trouble between M&A experts and companies that wish to acquire products and technologhies from start-ups. These guys simply cannot be trusted. They talk in such a manner yhat even Albert Einsteen would fade away. The california start-ups because of its third world culture, behavior and mentalities cannot be trusted.

It used no company would buy another company unlees it would gnerate enough revenue to be profitable.

Moreover, a company cannot grow unless it does its own R&D/isco, Nortel, lucent and Motorola are living examples to prove that mergers simply do not work.

In the coming months and years there would be a lot of push to sell storage companies as there are too many start-ups and they simply cannot stay in business on their own. But many of these companies would fall with the same or larger speed than the dotcom companies.

The US economy is not likely to grow more than 1% a year. Because loss of trillions of dollars by foreign investors, the money is simply will not flow in.The money that came from abroad has been eaten up and in some cases the investors would not see more than 10-15 cents per dollar. This is like in broadday light.
laughingboy 12/4/2012 | 10:13:20 PM
re: Startups Pray for M&A "...Earlier this year, the firm helped a joint venture pick up the pieces of a failed Ottawa startup (see Zenastra Reborn? )."

I think after the pieces were picked up they began beating each other with them.

Any predictions on what PWC's report card for Broadwave Photonics (aka Zenastra reborn) might be?

I'd love to be an optimist, but I see a big fat "F" in their future...

still Laughingboy.
I Know What You Did Last Summe 12/4/2012 | 10:13:19 PM
re: Startups Pray for M&A Ciena buys ONI for its annual $35M in revenue for $650M - that makes a lot of sense. Ciena's payback is 18.6 years - what a bargain. Boy, the smart people who thought this one up propably received a big bonus for this blockbuster idea. Some call it desperation to impress the financial analysts. Even though it was a stock deal and with decreasing revenue every quarter by Ciena, can you still hear Ciena's cash reserve ticking (spending) away...tick, tick, tick, tick, tick...Who is going to turn off the lights at Ciena???
ipo 12/4/2012 | 10:13:14 PM
re: Startups Pray for M&A frugality rules.
Scott Raynovich 12/4/2012 | 10:13:11 PM
re: Startups Pray for M&A Certainly, some of the many pundits out there must have some predictions about who may eventually get snapped up by whom?

light_rock 12/4/2012 | 10:13:08 PM
re: Startups Pray for M&A Is it a good marriage? I don't know. But it certainly was a cheap one. If you look at ONI's cash position (check out their latest 10-Q), you'll find that Ciena actually paid very little for them.

lucender 12/4/2012 | 10:13:05 PM
re: Startups Pray for M&A We might see a few of these like Alcatel/Astralpoint and Ciena/ONI, but I can't believe that there will be a lot of these deals. The big kids don't have that much money now, and they don't have the same desperation to appear credible in particular segments, like that which caused Lucent to pay $24e+09 for Ascend. (Now LU is not even worth 1/3 of that!)
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