Venture investing in network technology start-ups topped the $1 billion mark for the first time in the fourth quarter of 1997, according to the latest Price Waterhouse/Network World Venture Capital Survey.
The $1.03 billion invested in network companies comprised 41% of the $2.52 billion pumped into high-tech firms during the quarter.
As was the case in the third quarter, the charge was led by a number of telecommunications firms seeking to capitalize on telecom reform and, of course, dozens of Internet upstarts.
On an annual basis, venture investments in telecom start-ups increased from $737 million in 1996 to $1.23 billion in 1997, while Internet funding rose from $872 million to $1.88 billion during the same period. "Those two segments had far and away the biggest total funding increases in the survey over 1996," said Kirk Walden, Price Waterhouse Venture Capital Survey director.
In particular, telecom start-ups featuring wireless products and services attracted investor interest in the fourth quarter, with 16 firms closing funding rounds.
One such company, Formus Communications, Inc., of Denver, received $55 million from several investors over the third and fourth quarters, the highest amount reported to Price Waterhouse by venture capital firms.
Formus is developing wireless cable networks in international markets. Started a year ago, the company has 15 to 20 employees, yet raised $58 million in venture capital last year from several investors, including Chase Capital Partners, Telecom Partners LLP, Centennial Fund LLP and Spectrum Equity Investors.
While Formus' venture numbers are notably high, funding rounds for telecommunications start-ups tend to be higher than average.
"They require more money in earlier stages than your classic software investment because you're building some kind of infrastructure - laying fiber-optic cable or creating interchange agreements with other companies - and that doesn't happen without some pretty good cash," Walden said.
Formus also needs cash for the high-priced auctions the Federal Communications Commission began last week for Local Multipoint Distribution Service (LMDS) licenses. Holders of LMDS licenses will be able to offer wireless services for voice, video and data.
'Net bets
Electronic commerce software and services start-ups continued to attract heavy venture funding in the fourth quarter. Many of these firms, rather than pitching generic software and services, are targeting specific markets.For example, iPrint, Inc. ($3.3 million in fourth-quarter funding), of Moffet Field, Calif., is developing an electronic commerce system designed to automate mass market custom printing over the Internet.
And CyberSystem Technologies, Inc. ($450,000 in fourth-quarter funding), of Cockeys- ville, Md., is preparing to launch a Web site and electronic commerce service to buyers and sellers of health care and medical equipment.
Vendors targeting intranet and extranet customers also were well-funded in the fourth quarter, with many of them touting application management software.
Among those were Eprise Corp. ($5 million), of Framingham, Mass., formerly known as NovaLink USA Corp., and Oblix, Inc. ($3 million), of Mountain View, Calif.
Walden said people who are waiting for the venture bubble to burst had better not hold their breath.
Venture capitalists raised $9 billion in 1997, and thats another record, Walden said. Theyve got to put that money to work or their limited partners are not going to be happy.
Also, hundreds of network-related start-ups that have received venture backing in the past two years will get subsequent funding as they approach maturity, Walden said.
In addition, the latest survey shows that early-stage venture funding is increasing across all industries. In 1997, 1,209 early-stage companies received venture capital, compared with 864 in 1996, Walden said.
