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SAN JOSE, Calif.—The wireless market is significantly overfunded, venture capitalists said last week, portending a shakeout. Still, they couldnt help but list a number of new sectors that will need additional capital.
If nothing else, the panel at the WiFi Planet show here Friday underscored the perception of wireless as a “hot technology.” Roughly $2.5 billion has been invested in the sector, which has produced only $2 billion or so in revenue to date, according to Neeraj Bharadwaj, a general partner with Apax Partners, in New York.
Approximately $160 million has been invested in the last quarter alone, according to Rajeev Chand, a senior equity research analyst for wireless technologies at Rutberg & Co., in San Francisco, or about 15 percent of all of the capital invested during the quarter. “It doesnt look like this is decreasing,” Chand said. “The sector is overfunded, and we are concerned. With that said, despite the overfunding, there is an opportunity.”
The VCs could point to only one obvious success story: Atheros Communications, which filed for an initial public offering last week worth up to an estimated $100 million. However, even Atheros, which led the market into 802.11a chips, might not exist as a stand-alone company within 10 years. A second startup that could challenge Broadcom Corp. as a billion-dollar stand-alone company is even more unlikely. The conclusion: The days of wireless chip vendors are numbered.
“Intel Capital has not invested in a wireless LAN chip company for obvious reasons,” said Sriram Viswanathan, managing director of Intel Capitals wireless networking investments in Santa Clara, Calif. “We feel this will be a very large market for a very short time. Once integration occurs, this market will just cease to exist.”
Janice Roberts, a general partner with Mayfield in Menlo Park, Calif., agreed. “We didnt see a chip company that we felt had the right value proposition,” she said. Instead, the fund has turned to enterprise-class products, she said.
Next page: Snapping up startups.
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Moreover, any startup that manages to escape the shakeout immediately is seen as the next meal for larger companies looking for some new ideas. In return, the startup receives an established distribution channel.
“Somehow these corporations that have financial capitalists have figured out how to bet on VCs to be the R&D arm for them,” said Wes Raffel, general partner for Advanced Tech Ventures. After a VC firm has fed enough capital into the startup to allow it to mature, the larger corporations can snap up the startup. The vast number of hopeful startups just means theres more to choose from, he said.
The growing number of public hot spots is an opportunity, but a puzzling one. Save for startups like Cometa Networks, the business model doesnt seem to be there, the VCs said.
Thats not to say the wireless market is tapped out, the investors said. Just minutes after they claimed that the market was saturated with capital, the venture capitalists rattled off a laundry list of potential investments: software defined radios; smart antennas; MiMo, or the use of wireless sensors; the Zigbee technology; the emerging 802.11k network management standard; Wi-Fi cellular roaming; public hot spots, especially in China; the cable backhaul needed to link them, possibly replaced by mesh networks; WiMax; voice over IP and the tools needed to manage it; and “find me”/”follow me” services that will identify which network a user can be contacted on and make the appropriate connection.
The biggest problem? After being bitten by the dot-com bust, Raffel said investors arent willing to sink money into a startup that hasnt proven itself. Investors have become used to managing capital, expecting a return, and not performing their real jobs, managing risk, he said.