Wireless Venture Capital Is About To Hit An All-Time High


Investments in wireless technology maintained strong growth recently and are bucking the general venture capital investment trends that have witnessed overall decline from 2000 to 2005. The portion dedicated to wireless investments is on the increase, and will continue to do so, hitting an all-time high in 2006, says a new report from visiongain. During 2005, 152 wireless-related companies received US$1.3 billion in funding, a 24% increase over 2004′s US$1.1 billion.

Wireless accounted for 7% of total VC investment last year, a figure that will rise in 2006 and beyond. The bulk of telecom investment today – around 60% – is in wireless and related technology, including networking, infrastructure, semiconductors, mobile computing, content and services.

“Wireless is where the action is and this is a great time to be a wireless start-up in search of venture funding,” says visiongain analyst Lynne Gregg. “The focus of private equity investors is squarely on the rapidly growing, global wireless market. Longer term, we expect the movement towards financing wireless start-ups outside the US to grow, as major funds are earmarking funds for start-ups in Asian countries, such as China and India.”

“As the US public markets remain weak and private equity investing grows outside the US, we will see many more IPOs of wireless companies taking place in the public markets outside the US, such as the London Stock Exchange’s AIM,” adds Gregg.

Gregg, who has formerly held Director-level positions at AT&T Wireless and T-Mobile and worked closely advising numerous VC firms, concludes: “Historically, venture capital investment has shown strong support for technology-oriented businesses, particularly companies and industries that develop and rely upon information technologies. The rationale is simple: these are growth industries. Most venture capital firms are led by successful high-tech entrepreneurs or individuals who have successfully financed them.”

Venture-backed M&As in the telecom/wireless remained strong in 2005 and all indicators point to continued strength in this area in 2006, particularly with IPOs as stock markets rebound. This is particularly relevant because of the dearth of IPOs in the technology sector over the past five years. The largest deal of 2005 was the US$4.1 billion acquisition of VoIP company Skype by eBay. Looking forward, one eagerly anticipated IPO is Vonage, the US-based VoIP service provider, and it is likely that an IPO will take place in 2006.

However, risks still remain, warns visiongain. During 2005, there were only three venture-backed IPOs in the US telecoms sector. The stock of each of these firms has declined since their IPOs, which does not provide a great deal of confidence to investors in telecom IPOs. Only one 2005 telecom IPO did well: the stock of Neustar, a service provider to wireless and wire line operators, gained post-IPO. However, Neustar was not a venture-backed offering.