Cashed-up VCs seek software, telco targets

06 Jun 2007

Security, storage, home networking and optical are among the favorite investment targets for American venture capital firms this year.

Daniel J. Gatti, managing partner of Innovative Capital Ventures, told a workshop Tuesday at the BBWF in Beijing that ICT-related companies last year soaked up more than 50% of the $26.7 billion in VC cash.

The total was up slightly from $24.3 billion the year before, and with $9 billion laid out in Q1, 2007 was on target for a similar result. The US accounts for three-quarters of all VC activity worldwide.

Average VC investment has been $23 billion for the past five years, Gatti said. Of the IT and telecom investments, software takes the biggest share, accounting for $5 billion last year, with $2.3 billion going to telecom.

Gatti said security and in particular wireless security firms were attracting a lot of attention this year.

"Wireless security will be a big problem as we go forward," as all sorts of devices connect wirelessly to the Net.

The Sarbanes-Oxley requirement that enterprises retain their email was driving demand for encrypted storage solutions, while home networking was generating "tremendous" activity, as was digital video and IMS.

Since its collapse six years ago, optical was now back in favor, while investors were also keen on voice search and wireless backhaul startups.

Gatti said the market was significantly different from the boom times. Exit strategies today are taking longer, and 80% of them are via M&A, not IPO. Half of the firms that IPO-ed in 2007 started in 2001.

"If you are in business three to five to six years, you are doing everything right, and it makes [your firm] a very good acquisition for the acquiring company."

His advice was to startups was to keep costs down by minimizing headcount and to "know your customer".

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