Communications Wrap: Data Sees Dismal Start In 2001

The hype surrounding third-generation networks has not saved the data communications space from suffering the same drop-off in venture funding activity that has plagued nearly every sector since last spring.

Although the year is fast approaching the halfway point, a mere 67 data communications companies have captured VC dollars since January, for a total take of $845.01 million, according to our VentureXpert database. That?s slightly more than half of the 104 such firms that received a whopping $2.957 billion worth of venture funding over the same period last year.

Adding to the dismal picture, overall VC participation in data communications deals is down for the year to date as well. Just 144 VC firms dished out an average of $5.87 million per company in 2001, while 223 firms jumped on such deals last year, doling out $13.26 million on average ? almost double this year?s paltry outlays. Moreover, average deal size dipped sharply for the sector, declining to $12.61 million from $28.44 million a year ago.

In spite of the slump, however, a few companies managed to shine. The year?s biggest deal to date was Net2000 Communications Inc., of Herndon, Va., which in April finished up its Series D round with $65 million worth of equity commitments. It also picked up a $125 million senior secured credit facility from TD Securities Inc. as part of the financing. Boston Ventures Management, Banc Boston Capital, The Carlyle Group, PNC Equity Management and Nortel Networks participated on VC side. Founded in 1993, Net2000 provides telephone and data communications and Internet services to mid-sized corporations.

Pacific Broadband Communications followed close behind with a $50 million first round infusion from Bowman Capital, Cox Communications Inc., Juniper Networks, , Raza Foundries, Scientific-Atlanta and Vulcan Ventures. Based in San Jose, Calif., Pacific Broadband Communications develops noise-immune systems for broadband-service providers.

March saw the most funding activity in the data communications sector, with 27 companies receiving a respectable $272.29 million from the VC community. January also saw a flood of financings, with 16 companies netting $203 million worth of private capital. Reflecting what could be a possible slowdown in the sector for the remainder of the year, just four data communications deals were funded in May, taking away just $30 million from the venture pot.

For purposes of this analysis, the data communications sector includes local and wide area network providers, network managers and makers and suppliers of components such as processors, protocol converters and emulators, modems and multiplexers, as well as other communications components not mentioned above.

Robyn Kurdek can be contacted at Robyn.Kurdek@tfn.com