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Purse strings loosen for 5G startups

The telecom market is a notoriously difficult environment for startups. Customers are few and far between, sales cycles are long and, as a result, raising funds can be decidedly difficult.

But things are slowly changing.

"There's more awareness among VCs [venture capitalists] now than there was two or three years ago," explained Vinay Ravuri, who just this week announced $51 million in new funding for his startup, EdgeQ, which makes chipsets for 5G operations beyond smartphones.

"In the last two years that has changed a bit," he said, adding that VCs "are starting to realize there is an opportunity here."

Others agree.

"I do think there are growing sources of funding for 5G," said Rajeev Shah, CEO of startup Celona, which is focusing on the market for private wireless networking among enterprises.

"The short and sweet answer: Yes, there is more funding available for 5G startups than in the past," added Amar Kapadai, co-founder and CEO at Aarna Networks, which raised financing earlier this year for its network orchestration efforts.

According to a number of financiers and entrepreneurs, the tide is starting to turn in the telecom industry, partly as a result of the 5G wave. And though most agree that startups in the 5G industry can't access the seemingly limitless venture capital resources that startups in the artificial intelligence or microservices sectors seem to be able to get at, for example, the situation is nonetheless improving.

"I wouldn't call it amazing and I wouldn't call it zero," said EdgeQ's Ravuri. "It's getting better and better."

In the black

For example, during 2020:

  • Millimeter wave startup Movandi raised $27 million in a Series C funding round.
  • Kymeta Corporation bagged $85 million in funding.
  • Celona banked $30 million from investors.
  • Cellwize announced a $32 million Series B funding round.
  • DeepSig raised $5 million in its Series A financing round.
  • Network cloud company Alkira secured a $54 million Series B round.
  • Verana Networks closed its Series A funding in April.
  • Skylo emerged from stealth mode with a Series B round totaling $103 million.
  • The UK's AccelerComm secured a $7.4 million Series A round.
  • PICadvanced nabbed $4.5 million in a Series A financing round.
  • Startup Menlo Micro announced the closing of its $44 million Series B funding round.
  • SpaceMobile netted a $110 million Series B round of funding.
  • Clear announced a $13 million Series A round of venture funding.
  • And to encourage the development of new and innovative 5G services, T-Mobile launched its own venture capital fund for 5G, coupled with plans to open development centers scattered across the country.

"There is definitely more interest to invest in this ecosystem," said Quinn Li, SVP and global head of Qualcomm Ventures, which is one of the investors in Celona.

Reasons for the rising interest run the gamut. 5G technology is slowly but surely moving from the hype column to the reality column. Technologies like open RAN promise to reward new market entrants. And 5G heavyweights like Verizon and Qualcomm are extremely motivated – one could argue desperate – for the injection of innovation that startups offer.

For startups, the situation has resulted in more options.

Sources of funding

Celona's Shah explained that there are currently three buckets of financing available to 5G startups. The first and most lucrative comes from California's Silicon Valley.

"Silicon Valley VC over the last six to seven years, maybe even ten years, telecom has not been one of their favorite areas of investment," he explained. "Silicon Valley likes hyper-growth companies."

However, developments like private wireless networking and CBRS spectrum options have changed the equation, he said, widening the pool of potential customers for networking technologies from a handful of massive network operators to enterprises ranging from UPS to John Deere.

Shah said he worked hard to entice Silicon Valley VCs into his way of thinking. For example, he said his first presentation slide sported hot-button topics including artificial intelligence and the cloud. "That was needed," he said.

"Venture funding is growing as there is increased appreciation for the business-to-business opportunities around 5G and the disaggregation/standardization of the stack with O-RAN initiatives," added Aarna's Kapadai.

Shah said the second bucket of funding for 5G startups is represented by Quinn Li of Qualcomm Ventures; other companies in the 5G industry that operate their own startup financing arms include Intel, Verizon, Deutsche Telekom, Telefonica and Ericsson.

"It is in our interest to drive the ecosystem," Li explained.

And the third funding bucket for 5G startups stems from the geopolitical gyrations around issues like national security and a race toward 5G. Governments around the world want to promote home-grown options for domestic communications, whether through scientific grants, government contracts or other financing vehicles.

"It's still funding in some sense," acknowledged Ravuri of EdgeQ. But he said those sources don't necessarily draw a straight line from a PowerPoint presentation to a million-dollar funding round like traditional VCs often do. Instead, government financing often centers on specific research-and-development efforts.

Regardless of the source, most agree that startups in and around the 5G industry are no longer scraping the bottom of the funding barrel.

"The sources of funding for 5G over the last 18 months has clearly grown," Shah said.

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Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano

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