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Publisher's Outlook
July 2001

Rich Tehrani

 

Cautious Optimism

BY RICH TEHRANI

[ Go Right To: Head West


Ok, so it's not as catchy or as exciting as "irrational exuberance" but since when does anything cautious rival anything that's irrational? I'm talking of course about the current state of investment activity in our high-tech end of the market. At first glance, it would seem that things are about as bad as they could be -- that the once-open spigots of funding have dried up. Upon closer inspection however, one notices one important fact -- companies are still being funded and people are looking ahead to the future. That's right, nobody's casting wary glances out of their 35th floor boardroom windows just yet.

Still, the signs are confusing. Recently, in one day (in fact in a span of two hours) I received press releases heralding the following:

  1. A broadband company was shutting down its operations as it filed for Chapter 11;
  2. Another broadband company just received nearly $30 million in funding;
  3. An analyst report that stated the down economy will lead to softening of commercial IT spending; and
  4. Another analyst report that stated the long-term outlook for IT spending is positive.

CHARTING PROGRESS
In order to sift through the confusion, I decided to make a short list of some of the funding releases I recently received (Figure 1). In fact, I suggest you bookmark Recent Funding News so you can keep up-to-date with ongoing funding news as well as other financial news at TMCnet.com's BizWatch. You'll note that since the last quarter of 2000, venture capitalists have continued to pour money into companies in our space. And yet it's no surprise that the pace of investment has slowed somewhat. In fact, according to a recent PricewaterhouseCoopers/Money Tree survey, the amount of funding has dropped by almost 50 percent from Q4 2000 to Q1 2001. Still, there is no cause for alarm. The study points out that even with the quarter on quarter drop, investment capital is up when compared to the same period in 1999, with communications companies pulling down nearly a third of that financing. 2000 was a freak of nature, and many people are overreacting. The shakeout is overblown.

While some industry insiders have turned absolutely bearish, there are still some folks who exude cautious optimism. Zev Nijensohn, principal of Spectrum Equity Investors, took a few minutes to share his views with me. Mr. Nijensohn does not believe the flow of capital has been dammed, but rather that the pace of investing has simply slowed, "VC money has not dried up. There's a lot of money sitting on the sidelines."

SIDELINED MONEY
Atlas Venture, an international venture capital firm based in London and Boston recently announced a new $950 million early stage fund. Christopher Spray, a senior principal with the firm admits, "While the prospects for 2001 are of course less certain, we have many companies that are well placed to take advantage of the IPO markets whenever they reopen."

Greylock, another early-stage venture capital firm with bases in San Mateo and Boston, announced a new fund, Greylock XI Limited Partnership, capped at $1 billion. Greylock XI will fuel the firm's continuing early-stage investment in enterprise information technology and communications technology sectors.

OPPORTUNITY
In addition to the vast amounts of capital sitting and waiting on the sidelines, there are some amazing opportunities for VCs to take advantage of. Let's take a look at broadband, for example. This is still an amazingly underserved market. Regardless of the well-publicized problems that plagued the likes of Northpoint, Rhythms, Covad, et al, the fact remains that many people do not have ready access to broadband. They want it, and they're willing to pay for it. Now, if they could only get it.

According to Nijensohn, "There is clearly a need for broadband, but the applications that are going to drive the demand for 10 or 100 megabits to the desktop still aren't there yet, giving us a classic chicken-before-the-egg' scenario."

Which brings up yet another market opportunity. Services! We at Internet Telephony magazine have been jumping up and down, shouting about services as loud as we can for as long as I can remember. It's clear that service providers' future revenue will be derived from services, from those applications that consumers decide they can't live without. The companies that will provide those services are out there. It's a question of finding the right ones, and pursuing a strategy of prudent investing.


Figure 1: Recent Funding Data

Company Financing Date Sector
Multiplex 105 million May 2001 Photonic Components, Subsystems
Airnet  30 million  May 2001  Broadband, Wireless
Link-Two  12 million  May 2001  Broadband
VDSL Systems 12.4 million  May 2001  Broadband
Knowlagent  11 million   May 2001 Customer Interaction
aTelo  5 million  May 2001  Enhanced Services
Xora  7 million May 2001  Wireless; Mobile Enterprise
Zagros Networks  6.3 million   May 2001 Packet Switching
Respond Inc.  3 million  May 2001  Customer Loyalty
Connotate  1.7 million  May 2001  Content Monitoring
Sanrise Group  115 million  May 2001  Data Storage
Brix Networks  22 million  April 2001  Quality of Service; Verification
Kiwwi  41 million (Euros)  April 2001  VoIP Carrier
Continuous Computing 21 million  April 2001  Voice over Packet Platforms
ClearCube 20 million  April 2001  Enterprise Network Computing
Chinook Communications  17 million April 2001  Broadband
Responsys  25 million  April 2001  Interactive Marketing
Sitara 16 million  April 2001  Enterprise QoS
Wisor  10 million   April 2001 Service Order Management
E-Mail Vision 7.25 million (Euros)   April 2001 E-mail Marketing
Salesnet  6.1 million   March 2001 Sales Process Automation
Netkey  9.5 million   February 2001 Kiosk Software
Soliloquy  4.5 million   January 2001 eBusiness Software
MetricStream 1.5 million    January 2001 Enterprise Applications Infrastructure
eForce 16 million   January 2001 eBusiness Solutions
Telera 62 million  January 2001  Voice Web Infrastructure
NetCentrex  20 million   December 2000 Voice/Data Convergence
Evoke Software  25 million   December 2000 eBusiness Software
iMedeon  15.5 million November 2000  Mobile Workforce Management
Mirapoint  38 million   October 2000 Internet Messaging Infrastructure
Hipbone   10.3 million October 2000 Real Time Web Interaction Services
Holocom  8.35 million October 2000  Optical Fiber/Infrastructure

[Go Back to Top]


Mark Heesen, president of the National Venture Capital Association, agrees that it's all about wading through the muddle to discover opportunity. "Finding great ideas is still the idea. The industry is reviewing new opportunities and investing at a steady pace. In an economy as complex and diverse as ours, opportunity always abounds."

CONCLUSION
Let's face it, good technology always gets good funding. The technology is out there that will allow people to save money and to be more efficient in their work. It's then up to the marketers to get the message out there. But marketers and technologists alike need capital. It's the lifeblood of every entrepreneurial endeavor.

So lay blame on the failed dotcoms -- the sock puppets and the companies that burned through money like it was so much kindling. But don't take it out on good companies and legitimate businesses with good management and signs of revenue.

It's tough enough to get funding without flashing back to the irrational over-exuberance, which caused the massive run up of the markets in the first three quarters of 2000, or rather to the flameout that followed. We should expect investors to be wary in the wake of the past several quarters, but to those who would bury your head in the sand, allow me to issue this warning: There are plenty of opportunities out there right now; opportunities that will only be missed if you continue to sit on the sidelines. I'm not suggesting you dive in haphazardly, but I do advise you to take a cautiously optimistic look around. There is still ample opportunity to profit from communications. 

[ Return To The July 2001 Table Of Contents ]


Head West! Communications ASP Conference & Expo 2001

It's summertime. Are you feeling the heat? Why not escape the heat at the Bay -- San Francisco Bay to be precise. That's exactly where we'll be heading come August, for Communications ASP Conference & Expo 2001, which is to be held at the historic Fairmont Hotel in downtown San Francisco on August 8-10. This exciting first-time event will feature informative conferences on the technologies and services that drive the burgeoning hosted communications industry, as well as an intimate Exhibit Hall filled with industry leaders ready to share their knowledge and experience. It's abundantly obvious that the future of communications will be in providing services above and beyond POTS.

To that end, our conferences will focus on cutting-edge technologies like softswitch deployment, IP phones and appliances, IP Centrex, Voice over IP (VoIP), and vertical market opportunities. We will also offer information on building sales and support channels, as well as the importance of partnering to quickly get services to market. If you're looking for information on outsourced communications opportunities, this is the place to find it! Attendance will consist of communications ASPs, enterprise end users, resellers, wireless/PCS providers, telcos, ISPs, next-gen telcos, building local exchange carriers (BLECs), PTTs, and cable companies.

San Francisco offers culture and beauty and The Fairmont Hotel, which sits on top of the city's Nob Hill, provides outstanding views of San Francisco and the Bay. The building has been renovated to mirror its 1906 reconstruction, with features like marble floors and mosaic tiles. The hotel has also been a haven for many performers over the years, including Frank Sinatra. Tony Bennett sang "I Left My Heart In San Francisco" in its famous Venetian Room.

JOIN THE LEADERS
Some of the industry-leading vendors who have signed up to exhibit at this event include:

Abiliti Solutions (www.abilitisolutions.com). This hosted billing ASP offers the BillingCentral outsourced solution, with support for local and long-distance service, calling card services, and voice services over frame relay, ATM, ISDN, xDSL, and VoIP.

Aravox Technologies, Inc. (www.aravox.com). Once known as a VoIP firewall, Aravox has expanded its VoiceShield product into a network services platform, with capabilities for controlled access, usage, IP addresses, and paths based on specific application needs.

Avaya (www.avaya.com). Avaya is a leading global provider of communications solutions and services that help businesses, service providers, government agencies and other institutions. Avaya offers CRM, Unified Communications Solutions, Hosted Solutions, Multiservice Infrastructure, and Converged Voice and Data Networks.

Centrinity (www.centrinity.com). Centrinity offers a hosted unified communications platform that has already been deployed by service providers on a carrier-class scale, supporting hundreds of thousands of users. The FirstClass solution offers end users a unified mailbox for voice, fax, and e-mail receipt and delivery, accessible from any type of device.

ComoreTel (www.comoretel.com). This unique company is a venture between the sovereign nation of Comoros and an international investment group, providing opportunities for delivering toll-free long-distance services through one number, which may be used worldwide. The company's Global269 service will enable registration and activation of 269-800 numbers via the Web.

Crystal Group (www.crystalpc.com). Crystal offers server-based communications platforms with fully integrated packaged applications, designed for mission-critical communication service installations. Products focus on space savings, open architecture, carrier-class performance, and easy serviceability.

HighDeal (www.highdeal.com) sells a comprehensive rating, billing, and value chain management solution for telcos, ASPs, CSPs or virtually any business exchanging goods and services.

ICS Advent (www.icsadvent.com). ICS Advent designs, manufactures, and integrates high-availability rackmount and single board computers using customer-defined software and I/O resource boards. The company offers complete bundled solutions for voice processing, IP telephony, telecommunications, and broadcast applications.

Motorola's Multiservice Networks Division (MND) provides innovative business solutions combining our award winning line of Vanguard series multiservice access devices, and customized 24/7 managed services to meet the internetworking access requirements of corporate enterprise, and government customers.

NetCentrex (www.netcentrex.com). Offering next-generation voice networking products for VoIP and PSTN networks, NetCentrex also provides network-based applications for the e-commerce, consumer, and enterprise markets. The company's offerings include an IVR platform, an application development and execution platform, and a multi-protocol softswitch.

Quicknet Technologies (www.quicknet.net). Quicknet offers low-density Internet telephony hardware, software, and services. The MicroTelco service offers a central location for choosing an Internet telephony service provider (ITSP) based on voice quality and cost, for making voice calls from a PC to a standard phone.

The amazing solutions available in our Exhibit Hall are just part of the reason you should attend this important industry event. We will also be featuring keynote speakers and free networking receptions on the evenings of August 8 and 9. Don't miss out on an amazing opportunity! To learn more about Communications ASP Conference & Expo or to register to attend, visit our Web site, or call 800-243-6002.

[ Return To The July 2001 Table Of Contents ]



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