x
Funding for startups

VCs: Startup Opps Still Abound

LONDON -- Lightspeed Europe 2001 -- Venture investing in startups is staging a comeback, but it could use some help from large corporations, several speakers at the Lightspeed Europe 2001 conference said Tuesday. Though big carriers and equipment companies are consumed with layoffs and restructuring, they'd be "shortsighted" to abandon their venture investing activities, says Hermann Hauser, a director at Amadeus Capital Partners.

In his keynote talk here, Hauser hammered home the point that venture investing in optical and telecom technology companies is a long-term move and has more benefits than a financial payoff. In a packed room here that quickly ran out of empty seats and fresh air, Hauser urged large companies to do a better job at partnering with small companies but noted the task isn't easy because large companies are focused on self preservation, not new job creation.

What's discouraged big corporate investors is the market's overreaction to the opportunities in optical and storage area networking. For a few years, the market was overexcited about the potential of new technologies. "Now, they've overreacted the other way," he says.

Despite the overreactions, though, the demands on carrier networks are steadily growing, with more online users and more data applications. Intel Corp. (Nasdaq: INTC) founder Gordon Moore still jokes that Moore's Law -- his observation that the number of transistors in semiconductors doubles every 18 months -- can only continue for about 10 more years, something he's said every year since the 1960s, Hauser says. But at this moment, he adds, the performance of optical technologies doubles every nine months, and the performance of storage technologies doubles every twelve months.

"Carrier traffic was growing 300 to 400 percent during the frothiest months of last year," says Richard Norman, president and CTO of Hyperchip Inc. "But at the market's bleakest point, traffic was still growing about 100 percent a year."

Furthering his argument that there are still plenty of venture opportunities both in Europe and elsewhere, Hauser points to the "30-times mismatch" between the bandwidth available at the network's core and the bandwidth that's consumed by end users.

"Ironically, the U.S. networks are suffering from antiquated copper and cable plants and low population densities," he says, noting that investments in the network's last mile are sorely needed.

Despite such need for new investment, however, everybody also concurred the the current crowd of startups is thick and in need of weeding -- as more money is plowed into the stronger ones.

There were more than 300 optical systems and components companies created in the optical startup boom, according Hossam Galal, director with Carlyle Venture Partners. Rather than just letting most of those companies die, company directors should consider either extracting technology out of some companies and adding it to other ventures, or combining several startups into one company.

"There are rollup opportunities -- you can put some of these non-differentiated players together and create a more muscular player," said Galal in a venture panel.

Naturally, even with consistently growing demand for networking technologies, making money off young investments is still tricky business. Startups that don't time their product to the market's needs may quickly find themselves out of business.

"The problem is that every 18 months somebody comes out with a new widget," says Optical Capital Group CEO John Spirtos. "If you can't figure out how to make money on an investment in 36 months or less, you need to get out of that business model. Equipment is like Kleenex, you've got to be able to use it, chew it up [!], and get onto the next thing."

But after being stung by the market's overreactions to new technologies in the past year, venture capitalists are slowly unclenching their wallets and starting to do deals again. "VC activity is picking up," says Hyperchip's Norman. "If it doesn't seem that way it's because Wall Street tries to act six months before the industry moves, and VCs try to stay six months ahead of Wall Street."

What remains to be seen is whether the big telecom companies and carriers will ante up for the future.

- Phil Harvey, Senior Editor, with R. Scott Raynovich, Executive Editor, Light Reading
http://www.lightreading.com
Page 1 / 3   >   >>
HarveyMudd 12/4/2012 | 7:29:22 PM
re: VCs: Startup Opps Still Abound It makes more sense to start new companies Europe because of stability, cost structure and a good supply of highly trained workers.

At the height of Optical hysteria the US VCs styarted over 500 optical copmpanies. About 45% of them have alreadt perished and other 45% will perish as soon as the money is gone.

It was insane to start these many companies as their products and tecxhnologies are not needed. It is equally surprising these start-ups would blame economic downturn as their execuse.

As far as insanity is concerned there are almost over 20 companies trying to make VCSELs.

diag_eng 12/4/2012 | 7:29:17 PM
re: VCs: Startup Opps Still Abound I disagree regarding the talent pool. One key to success in a startup is time-to-market, which requires buring the midnight oil.

The Eurpoean work ethic, for the most part, is not condusive to what is required in a startup. Also, employers, as well as employees, are loyal to one another.

Not to mention, nothing beats Yankee-Know-How. :)

>> It makes more sense to start new companies Europe because of stability, cost structure and a good supply of highly trained workers.

phyguy 12/4/2012 | 7:29:13 PM
re: VCs: Startup Opps Still Abound Although Europe has not been condusive to the
start-up mentality in the past, we are overtaking the US, particularly in the UK and Ireland

For example, in the UK there is a new tax regime that will allow options to be taxed at only 10% when a home grown start-up exits!

Come over here and apply your "Yankee-Know-How",
you know it makes sense ;-)

ps - take advantage of 10% tax you need to denounce your US citizenship
gardner 12/4/2012 | 7:29:12 PM
re: VCs: Startup Opps Still Abound The Eurpoean work ethic, for the most part, is not condusive to what is required in a startup.


Translation: Europeans know how to live a balanced life and won't let greed tempt them to neglect the mental health of themselves and their families.

I wonder how this sounds to the people who worked 80 hour weeks for startups, alienating family and friends and setting themselves up burnout? Especially since most startups leave you without a package when they plunge (of course the founders often find a way to squirrel away some money for the end but the average engineer gets screwed when a startup rolls over).

Also, employers, as well as employees, are loyal to one another.

And of course we all know that loyalty is the worst vice imaginable. ;-)
RJ-45 12/4/2012 | 7:29:11 PM
re: VCs: Startup Opps Still Abound ================================================
Diag-eng wrote:

I disagree regarding the talent pool. One key
to success in a startup is time-to-market,
which requires burning the midnight oil.

The Eurpoean work ethic, for the most part,
is not condusive to what is required in a startup.
Also, employers, as well as employees, are loyal
to one another.
================================================

Perhaps time-to-market is a key to success,
but not the only one. Other factors include
a viable business plan, long-term vision and
good enginering processes (as opposed to just
marketing preoccupation with the product's
perception).

As far as burning midnight oil. There are many
crappy high-tech (especially software) products
that were created in a series of all-nighters.
The management boasts with a very impressive
time-to-market, but we engineers know better:
inflexibility, lack of structure and bad design
makes us spend much more time when the product
is used, modified or redesigned. And it's not
a zero-sum game: the time and resources lost
are much greater than initial gains.

I don't get your statement about European
work ethic. Employers and employees being
loyal to one another? What does that mean?
Are you sure it's bad?

HarveyMuddSucks 12/4/2012 | 7:29:10 PM
re: VCs: Startup Opps Still Abound Harvey,
Over the past few months I have watched as you continue to spout crap into the discussion forums of Light Reading. Could you possibley keep your negative and often unfounded opinions to yourself? Have you kept a tally of how many times the information you've presented has been absolytely incorrect? I'd be a rich man if I had a dollar for every time!
diag_eng 12/4/2012 | 7:29:10 PM
re: VCs: Startup Opps Still Abound For example, in the UK there is a new tax regime that will allow options to be taxed at only 10% when a home grown start-up exits!

_________________________________________

I agree, the UK and Ireland are the exceptions, and perhaps have always been.

ps - take advantage of 10% tax you need to denounce your US citizenship
_____________________________________

Never.
diag_eng 12/4/2012 | 7:29:10 PM
re: VCs: Startup Opps Still Abound Translation: Europeans know how to live a balanced life and won't let greed tempt them to neglect the mental health of themselves and their families.
_______________________________

I absolutely agree. Greed is not what drove me to work for startups. Yes, the lure of the upside was definitely one, but the other was the environment. It has benefited my family more than financially.

What is wrong with a yound man/woman working hard to advance his family's financial viability?
diag_eng 12/4/2012 | 7:29:10 PM
re: VCs: Startup Opps Still Abound That's why I said time-to-market is "ONE" key to success.
eyesright 12/4/2012 | 7:29:09 PM
re: VCs: Startup Opps Still Abound While we can debate whether the startup environment is better in the UK and Ireland than in the States, I think we can all agree on is that their beer is better!

Cheers!
Page 1 / 3   >   >>
HOME
Sign In
SEARCH
CLOSE
MORE
CLOSE