Investments in wireless startups fell in first quarter

Even though the largest venture capital deal for the first quarter of 2006 went to a wireless entertainment company, the overall wireless industry saw an 11 percent dip in investments for the quarter, after enjoying most of last year in investors' good graces.

According to the MoneyTree Report, issued Tuesday by Pricewaterhouse Coopers and the National Venture Capital Association and based on data from Thomson Financial, overall venture capital investing for the first quarter of 2006 reached US$5.6 billion in 761 deals. That amount echoes the US$5.7 billion invested during the last quarter of 2005, and is up 12 percent from the US$5 billion invested during the first quarter of 2005.

However, the picture is very different for the telecommunications industry. During the first quarter of this year, investors put US$601 million into telecommunications companies, down 17 percent from the US$722 million invested in that sector during the fourth quarter of 2005, according to the report. First-round investments in telecommunications companies hit the lowest level since the first quarter of 2005, the report shows.

This dip in telecommunications investments was largely due to a sudden lag in wireless interest, says Tracy Lefteroff, global managing partner of Pricewaterhouse Coopers' private equity and venture capital and life sciences industry services.

There were, of course, exceptions. Amp'd Mobile, a provider of wireless entertainment services, received US$111 million from venture capitalists during the first quarter. However, this investment was likely made more for the entertainment aspects of the company's offering than the wireless component. "A big jump came in the media and entertainment industries, which rose about 80 percent from the fourth quarter, reaching a four-year high," says Lefteroff.

Venture capital investments in networking companies took a turn for the better, with that sector garnering US$231 million during the first quarter, up from US$204 million invested during the fourth quarter of last year.

Investments in Internet-specific companies, defined by Lefteroff as those with business models that fundamentally depend on the Internet regardless of which industry they're in, saw a 10 percent increase in investments over last quarter, reaching US$860 million. And along with increased popularity of these companies comes new interest in startups that build the systems and infrastructure to support them.

"With software as a service and entertainment software delivered via the Internet, we're seeing interesting new Internet technologies and delivery platforms that enable these types of applications," says Bob Williams, general partner with venture capital firm Bay Partners.

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