Venture capital support for network infrastructure has been on the decline for many years, as highlighted in our August 2012 report, Networking Start-ups Overdue for VC Rebound. Since then we have watched closely for signs of a turnaround.
Start-ups – whatever their sector – need both an initial source of funding and a good chance of exit for their backers.
Fortunately exit opportunities are improving: Cisco has announced four acquisitions (Intucell, Cognitive Security, SolveDirect, and Ubiquisys) since January 1, and IT vendor Oracle signaled its plans to expand in telecom by acquiring Acme Packet and announcing its agreement to acquire Tekelec (deal pending). Software-defined networking (SDN) startup Cyan Inc. filed for an IPO in early April.
Initial funding opportunities are also looking up: VC networking investments surged to $399 million in 1Q13, easily the strongest result since 3Q07. This early 2013 data suggest that investors are paying attention to networks once again, not just the stuff that runs on top of them.
Ready or not, here comes Oracle
When a vendor with $33.4 billion of cash and liquid investments starts buying companies in your sector, you better pay attention.
Historically Oracle’s telecom role has been primarily focused on back-office functions such as billing and customer relationship management solutions. Over the past few years, though, software has become more important to how operators run networks.
More telecom-focused vendors now differentiate around software-enabled functions and features on hardware (e.g. software-defined radios), or pure software solutions (e.g. software-based virtualized network services such as deep-packet inspection and mobile gateways). The acquisition of Acme Packet and the pending Tekelec deal give Oracle the chance to expand its telecom offerings in the areas of service control, charging, and analytics.
Other IT-focused vendors may follow suit. For instance, both IBM and HP already do lots of business with telcos – they booked $5.9 billion and $3.5 billion, respectively, in services revenues sold to telcos in 2012. These two, and others such as EMC, Computer Associates, and InfoVista, also provide focused solutions to telcos beyond services, in areas such as network performance management. As traditional telecom vendors including Alcatel-Lucent and NSN refine their strategies, IT vendors seem likely to continue stepping onto their turf, and buying start-ups is one approach.
And don’t forget Cisco. It has even more cash and investments than Oracle on its balance sheet ($46.4 billion) and has announced four new acquisitions in the first four months of 2013.