Venture Firms: More Deals, Less Investment in Networking and Equipment Companies

Carl Weinschenk

A major report on venture capital funding titled, "The MoneyTree Report," holds a bit of a surprise, at least to those not familiar with the ins and outs of venture capital funding: Networking and telecom companies did not do well.

Network World reported the news:

The latest numbers from the "The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA)" based on data from Thomson Reuters show that networking and equipment companies grabbed $111 million in venture funding in Q1, down from $138M in Q1 last year and $114M in Q4. However, there were 15 deals, up from 14 in Q1 last year and 12 in Q4, with companies such as Big Switch Networks garnering $13.8 million in funding.

The discordant note is that all signs point to network infrastructure -- which supposedly will soon buckle like a highway on the hottest day of summer -- as a potential goldmine for those able to extend it, squeeze it or otherwise increase the number of bits that get from here to there. It is especially intriguing since one of the quarters during which more deals were made than the first three months of this year was during the recession.

There are deals being made, however. Last week, the site MHT reported that Zixi LLC, a startup in the over-the-top video category, raised $4 million from Hub, a venture capital firm that the site describes as "media and telecommunications industry angels." According to the story, Zixi last year entered into a partnership with Netgear on set-top boxes that accelerate video delivery.

CB Insight, another firm, also released its first quarter venture results. The company broke out the investments in "Internet companies," which most likely didn't distinguish between content and networking. That caveat notwithstanding, the firm's results seem quite different than PWC's, according to InvestorPlace:

It calculated that 286 Internet companies received an aggregate $2.32 billion in the first quarter, an 83% rise. Overall, Internet companies received 31% of venture dollars invested in the quarter, up from 21% one year earlier. That's quite a rise when you consider that startup costs are lower for web companies than for solar-panel makers or networking companies.

Indeed, it is likely that a lot of that money came from folks who do things with the Internet as opposed to those that make the underlying network run better. Venture capital is just one way of raising money, of course. It is interesting to note, however, that though there were more projects in total number, the VCs either don't believe there is a major need to increase bandwidth-hence the smaller investments -- don't see viable big projects, or just believe that the political and regulatory climate is too mercurial to justify major outlays.

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