Last year, it seemed that almost every venture capital investment was made in the communications sector. Thus far in 2001, however, communications firms in search of funding are struggling to get noticed.
In fact, investments in the sector year-to-date are less than half of what they were over the same period last year – 53 companies receiving $799.58 million in 2001 compared to 91 companies receiving $2.98 billion last year. After recovering from numerous public portfolio burns, buyers seem to be treading carefully through this year’s uncertainty as the Federal Reserve adjusts interest rates, the public markets rise and fall, companies miss earnings expectations and the IPO window remains closed.
“The money’s still there, but investors are just more careful about where it’s going,” said Rich Gruber, an analyst at Venture Ecomomics.
This year’s deals are smaller and more conservative. While broadband wireless service provider WinStar Communications Inc. of Washington, D.C., was able to raise $900 million of private equity financing in the first part of 2000, this year’s two biggest communications deals, PointOne Telecommunications Inc. and Illinois PCS LLC, each raised a paltry $70 million.
For PointOne, a data and communications service provider based in Austin Texas, the deal was a series B round of financing that included many of the company’s original investors – The CIT Group, Soros Fund Management, Texas Growth Fund Management and VP Private Equity Ltd. The Blackstone Group, on the other hand, was the sole investor in Illinois PCS’ first and second round of private equity financing. Illinois PCS, of Geneseo, Ill., markets wireless communications under the Sprint PCS brand.
“Investors are concentrating more on their existing investments, just makingsure their existing companies do well,” Gruber said.