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VC Funding: Drip, Drip, Drip

Light Reading
News Analysis
Light Reading
10/29/2002

Venture capital investments in telecommunications startups fell by more than 50 percent since the third quarter of last year, according to the latest MoneyTree Survey by PricewaterhouseCoopers, Venture Economics, and National Venture Capital Association. Thanks to the prolonged economic slump, venture investing across all industries declined 48 percent since the third quarter of 2001, the survey states.

The effects of the economic slowdown are as pronounced as ever in the private equity area. The time between financing rounds is getting longer. The average size of each investing round is decreasing. And the percentage of money in each sector going to new companies is also getting smaller -- which suggests that many venture capitalists are sitting on the sidelines and nursing their portfolios.

In the third quarter, 67 telecommunications companies received $555 million in funding, according to the MoneyTree survey. Across all industries, 647 companies received $4.8 billion, the lowest total amount of funding in four and a half years, the survey states (see VCs Wait for Liquidity).

While the number of dollars put into startups continues to slide, the deal flow, or number of deals being completed, has only dropped by about one third, according to VentureOne and Ernst & Young, which published their own venture capital study with similar results late last week.

“When you see the time between financing rounds increase from a median of 9.5 months in 2000 to 17 months in 2002, you know executives are finding ways to stretch their budgets," says Bryan Pearce, who leads Ernst & Young's venture capital advisory group, in a written statement.

Telecommunications was the second largest industry category represented in the survey -- behind software, which accounted for about 22 percent of all venture capital invested last quarter. Despite its relative size, however, only about 13 percent of the venture capital dollars invested in telecom companies went to first-time investments -- 87 percent went to existing portfolio companies.

Table 1: Venture Funding Slips Year-to-Year

Industry Sector 3Q2002 ($M) Investments 3Q2001 ($M) Investments Percentage of Decrease
Networking and Equipment 341.00 1,353.00 75%
Telecom 554.00 1,122.00 51%
Semiconductors 270.00 516.00 48%
Source: The PricewaterhouseCoopers/Venture Economics/National Venture Capital Association MoneyTree Survey


It's apparent that many VCs are keeping their existing investments afloat, a situation that makes life tougher for brand new startups. "New telecommunications companies have the hardest time getting first-time financing," says Tracy Lefteroff, who leads the venture capital practice at PricewaterhouseCoopers.

On a conference call announcing the MoneyTree survey, venture analysts and VCs exhausted every "back-to-basics" and "return-to-reality" cliché imaginable (see VCs Say the Worst Is Over). If there is an upside to the venture capital downturn, perhaps the quality of investors and startups will improve as the venture market shakeout continues.

"VCs today assume they'll be working with their investments for five years or more," says Bob Grady, a general partner at Carlyle Venture Partners. "This is good news. The rate of investment is going down, so less money is chasing a relatively constant pace of innovation."

— Phil Harvey, Senior Editor, Light Reading
www.lightreading.com
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BobbyMax
BobbyMax
12/4/2012 | 9:27:29 PM
re: VC Funding: Drip, Drip, Drip
In spite of the very high level of VC finding there is no evidence that these fundings have done any good to the common good of the telecom imdustry. The VC companies have squandered the wealth of the investors, individuals. Many pension funds have disappeared.

Our telephone infrastructure is more or less perfect. Of the many companies, that I have seen receiving funding has done any thing profound. Many teams were formed and funded by the VCs without any regard to the technology. VC have provide 3-4 years of comfortable living. And then these guys seek another funding and do the same thing they previosly did.
BobbyMax
BobbyMax
12/4/2012 | 9:27:28 PM
re: VC Funding: Drip, Drip, Drip
In spite of the very high level of VC finding there is no evidence that these fundings have done any good to the common good of the telecom imdustry. The VC companies have squandered the wealth of the investors, individuals. Many pension funds have disappeared.

Our telephone infrastructure is more or less perfect. Of the many companies, that I have seen receiving funding has done any thing profound. Many teams were formed and funded by the VCs without any regard to the technology. VC have provide 3-4 years of comfortable living. And then these guys seek another funding and do the same thing they previosly did.
TheChief
TheChief
12/4/2012 | 9:27:26 PM
re: VC Funding: Drip, Drip, Drip
The VC companies have squandered the wealth of the investors, individuals. Many pension funds have disappeared.
=================================================

Bobby do you even know what VCs are? When you say "have squandered the wealth of the investors, individuals", can you back that up and show me one VC company that overall, has lost money! The only pension funds that would be affected by VCs are ones that are invested in the VC, so can you name one pension fund that has lost on a VC investment?
smoking_craters
smoking_craters
12/4/2012 | 9:27:21 PM
re: VC Funding: Drip, Drip, Drip
Bobby:

You're right. VC's suck. They never achieve anything. They just take people's money, spend it on expensive cars and loose women and then go to prison. They never built anything. They're just worthless carpetbaggers. Or maybe not.

Let's see. I just typed this on a computer whose parts were made by companies started by VC's. The software was written by a company funded by VC's. It got served up through a box made by a company funded by VC's. When it left this building it was carried by a company funded by VC's. It exited my building via a router built by a company started by VC's. It probably traversed one or two long haul networks built by companies funded by VC's. And then it got to your end.

Any or all of those things (computer, software, server, network) could have been built by bigger companies, but they weren't! Big companies don't innovate as much as small companies do.

The Internet wouldn't be here without VC's (or the Government, or Universities for that matter). Sorry, Bobby, you'll have to find someone else to blame for your troubles.
God
God
12/4/2012 | 9:27:18 PM
re: VC Funding: Drip, Drip, Drip
BobbyMax
You are absolutely right.

The VCs are are also to blame for the Giants not winning the World Championship
jboyd65
jboyd65
12/4/2012 | 9:27:15 PM
re: VC Funding: Drip, Drip, Drip
>> The VCs are are also to blame for the Giants not winning the World Championship

---------------------------------------

Was that the "World" Championship that only allows teams from the US and Canada to participate ?
kz1x
kz1x
12/4/2012 | 9:27:15 PM
re: VC Funding: Drip, Drip, Drip
they certainly have't helped with your spelling or grammar, either
achorale
achorale
12/4/2012 | 9:27:14 PM
re: VC Funding: Drip, Drip, Drip
I am starting to believe he is a creation from the LR staff to keep us coming back to these message boards
BBBoa
BBBoa
12/4/2012 | 9:27:14 PM
re: VC Funding: Drip, Drip, Drip
Will everyone just please ignore BobbyMax. He's either:

A. During the course of his pathetic and bored existence, posting inflammatory comments to see how many people actually respond to his useless drivel, or

B. A complete moron who knows nothing about telecom, optical networking, VCs, or anything remotely related, or

C. Both A & B

Not once have I ever read his posts and came away with an inkling that he's a functional employee anywhere. As long as someone continues to respond to his idiocy, he'll keep on posting useless messages.
whyiswhy
whyiswhy
12/4/2012 | 9:27:13 PM
re: VC Funding: Drip, Drip, Drip
...now is the best time for VCs to fund very capital efficient start-ups, what with low real estate costs, cheap surplus equipment, lots of top talent looking for work...

But instead, we see the opposite. One might be tempted to conclude that (50%) of VCs were banking on exiting in under three years. When three years came and went with no exits they were broke: flameouts.

But that would be so out of character.

-Why?
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