There’s still time to place your WiMax bets, but the clock is ticking thanks to two significant developments this summer.
First, Intel Capital made the largest single VC investment in history, writing a $600 million check as part of a $1 billion investment in Craig McCaw’s Clearwire Corp. in July. A month later, Sprint/Nextel announced that its next-generation network would be based on WiMax technology, and that it would invest more than $3 billion to deploy it.
“If all goes well it’s going to be a much more open network than cellular,” says Claude Leglise, managing director of W.I. Harper. Leglise confesses that he didn’t spend much time on WiMax after he left VP position at Intel Capital last year, but “the Sprint announcement changes the atmosphere.”
As an open, IP-based wireless platform, WiMax is “a technology that no one company controls and that sort of smells and feels like Ethernet,” offers Sriram Viswanathan, a vice president at Intel Capital. And consider all of the applications that would be enabled by broadband wireless—Sprint promises 2Mbit to 4Mbit per second throughput to its customers, which it says is fast enough to allow mobile video conferencing. In Korea, Samsung recently demonstrated technology it claims will produce speeds of up to 1Gbit, which Viswanathan says will be focused on the voice part of WiMax.
WiMax, then, threatens to do nothing short of disrupting the cellular industry. That could mean years of new opportunities for venture investors, who have invested in more than a dozen WiMax companies in the past year (see table).
Both Intel Capital and its corporate overlord have huge expectations for WiMax to be a broadband repeat of WiFi. Intel helped spark WiFi’s success by incorporating it into its Centrino chipset, a mobile computing platform that became widespread in notebook computers.
The notion that you’re going to have real broadband wireless anywhere—that means what’s really exciting is the set of services that can ride on it.”
Sriram Viswanathan, Vice President, Intel Capital
But most VCs see little opportunity in semiconductors and networking equipment. Says Leglise of W.I. Harper: “The notion that you’re going to have real broadband wireless anywhere—that means what’s really exciting is the set of services that can ride on it.”
Dixon Doll, general partner of DCM-Doll Capital Management, also sees WiMax services companies as attractive. He says he has met with several such companies, but he has not yet made an investment in that space. “The driver here is really … very much the same driver that drove WiFi,” he says.
So far, DCM has made two WiMax bets: Clearwire and Apace, a WiMax chipmaker in stealth mode. DCM has also invested in IP Wireless, which offers a competing technology to WiMax. Doll hinted that IP Wireless may have a WiMax-related announcement in the future.
While DCM hasn’t pulled the trigger on a WiMax services investment, a few such companies have garnered venture backing. In July, Nomad Holdings, a British company that aims to put WiMax on trains, pulled in $14.8 million in a Series A round. In August, WiNetworks, which is developing technology that would allow cable and satellite companies to connect to mobile devices over WiMax, pulled in $11 million.
As WiMax becomes a reality, it may prompt some VCs to refocus portfolio companies. Jackie Kimzey, a general partner at Sevin Rosen Funds, says that several of his firm’s portfolio companies may adapt their strategies around WiMax. Among them are Metrofi, which is working to deploy broadband wireless in residential areas; Airband, which aims to swap out fast transfer pipes like T1 lines to businesses; and Interwireless, which manages radio frequency services for health care networks.
“We don’t need to be the winner in developing component technology,” says Kimzey. “We just need to be clairvoyant enough to know that WiMax is going to have a major impact on services providers.”
We just need to be clairvoyant enough to know that WiMax is going to have a major impact on services providers.”
Jackie Kimzey, General Partner, Sevin Rosen Funds
Of course, Intel’s backing does not guarantee success for WiMax, or its investors.
First, dollars. WiMax is meant to compete with the cellular network, and it has similar investment requirements. Towers and base stations are needed to make it go. Viswanathan says it may cost $15 billion to build out a WiMax infrastructure globally.
Second, competitors. WiMax enters a market that is still deploying 3G network technologies, like EV-DO, a high-speed data network being deployed by wireless carriers like Sprint and Verizon. Consumers or carriers may decide this is fast enough for now. Then there is Qualcomm, which is the dominant technology provider in today’s cellular market and has a 4G technology of its own.
Third, timing. For venture investors, this matters most. Even if WiMax wins more commitments from big carriers, wireless technologies are notorious for taking longer than expected to deploy. That could lengthen funding cycles for startups, and decrease potential returns.
Leglise, for one, plans to tread cautiously—until towers are up and WiMax-enabled laptops and handsets are on the market.
Still, WiMax has the kind of momentum that should yield healthy returns for venture investors. Says Kimzey: “I think it’s a slam dunk.”