VC money still flowing to wireless

Sue Marek2009 was a tough year for many wireless startups. The economic downturn caused venture capitalists to shy away from investing in new technology firms. According to the National Venture Capital Association, venture capital funding in the telecommunications sector declined to just $558.7 million last year, down from $1.67 billion in 2008.  

But some VCs say the tide is turning, and many predict a bright future for enterprising mobile startups in 2010. In particular, if your firm is looking to solve some of the big challenges facing the wireless industry (like overcoming network capacity constraints or building a more intuitive user interface for devices), you may be able to score some funding.

Earlier this week, newcomer SpiderCloud Wireless, which makes an indoor wireless system for operators to help solve indoor capacity and coverage issues, closed on a $25 million round of Series B financing led by Opus Capital with investments from Shasta Ventures. And in December, text input firm Swype secured $5.6 million in Series B financing led by Nokia Growth Partners, Samsung Ventures and returning investor Benaroya Capital.

But these are just two recent examples. Rich Wong, a partner with Accel Partners--a venture capital firm that has invested in some high-profile mobile companies such as Admob, Medio Systems, SurfKitchen and GetJar--says he believes VCs are bullish about wireless because the industry is finally starting to open up. "The rise of open mobile is expanding the market for venture capitalists and startup companies to be players in the mobile industry," Wong says. In the past, entrepreneurs had to compete to get the attention of key people at the Tier 1 wireless carriers to get traction in the market, but that's no longer the case. Wong says Admob, which was acquired by Google in November for $750 million, never had a deal with a carrier. "You can work in the off-deck or open mobile world, prove yourself and then get a deal with Verizon or AT&T," he says. "You have more leverage."

Wong says there are lots of opportunities for VC investment in the mobile industry--whether it's on the application side or in network infrastructure. Accel Partners has typically focused on firms that make applications but recently invested in NextG, a startup that makes distributed antenna systems to help carriers with their network capacity. "Going forward we are going to look at everything--applications, application enablement, IMS, backhaul and infrastructure," Wong says.

Wong isn't alone in his bullish views on mobile. Newcomer Javinian Venture Fund is a $150 million fund that is focusing its investments exclusively on wireless startups that solve capacity and quality-of-service issues. John Dooley, managing director, says the firm believes there is a looming spectrum crisis and technologies (whether components, software or infrastructure) that have a solution to capacity issues will succeed.

Javinian has not made any investments yet, but Dooley says the company is looking at some very compelling firms. "We are looking closely at different types of technologies, how valuable they are and how their intellectual property is protected," Dooley says.

But be warned. Dooley says his firm is looking for companies with smart engineers who know more about the ins and outs of wireless technology. What he's not looking for are serial entrepreneurs who are more skilled in securing VC funding than in understanding wireless technology.  

Wireless entrepreneurs take note: 2010 may just be the right year to finally launch that mobile startup you've been dreaming about. --Sue

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