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September 27, 2012

Networking Startups See Return of VC Interest

By Ashok Bindra, TMCnet Contributor

Since the financial crisis, venture capital (VC) companies have been paying more attention to mobile, social, and OTT startups, showing very little interest in the telecom sector. According to global analyst firm Ovum (News - Alert), VC support for telecom infrastructure start-ups has dropped from $796 million in 2009 to just $270 million in the 3Q11–2Q12 period. However, in recently released findings from the company, it was revealed that “recent IPO and M&A transactions could point to a rebound in VC interest in network infrastructure.”

While VC support for network infrastructure has declined, overall VC investments have gone up, growing from $20.1 billion in 2009 to $27.8 billion in the four quarters ending in 2Q12. Per Ovum’s report, some of the beneficiaries of this modest surge include Facebook, Groupon, Twitter (News - Alert), LivingSocial, Square, Lashou, Kabam, WhatsApp, and Spotify.

Matt Walker, Ovum principal analyst and author of the report added, “A funding disconnect has thereby emerged between network builders and network users. Lots of innovation and venture capital is targeting the network users, such as mobile apps and OTT platforms. However, little of it is directly helping the network builders.”

He further commented, “Incumbent vendors’ internal R&D budgets are now nearly 90 times larger than VC investments in the sector, up from 30 times two years ago. This narrows options for service providers, who rely on both large and small vendors for innovation. The big vendors also need access to the start-up pipeline, to fill in gaps in their own portfolios through partnership and M&A.”

Additionally, service providers are getting more actively involved in funding and working with startups. Citing examples of Telefonica, Vodafone, Verizon (News - Alert), AT&T, KDDI, China Mobile and many others, the report shows that these carriers are now funding startups directly, often deploying products in the network or lab ahead of commercial availability. Earlier this month, Deutsche Telekom (News - Alert) (DT) was the latest carrier to unveil a new push on the venture side, revamping its T-Venture unit to foster purchase of majority stakes and accelerated disbursement of funds.

Want to learn more about the latest in communications and technology? Then be sure to attend ITEXPO Austin 2012, taking place Oct. 2-5, in Austin, TX.  Stay in touch with everything happening at ITEXPO (News - Alert). Follow us on Twitter.

Edited by Jamie Epstein
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