The new millenium began with a bang, as venture capital investments in networking companies reached an all-time high of $US12.5 billion during the first quarter of 2000, up 11 percent over the previous record-setting quarter and 14 times more than the $877 million invested in the first quarter of 1999.
These are the findings of the latest PricewaterhouseCoopers LLP/Network World Venture Capital Survey, which shows continued strength in the entrepreneurial climate in the US for start-ups offering Internet-based services and software.
Among the hottest areas for investment were application service providers, e-commerce software, Internet consulting and business-to-business marketplaces. In the telecom arena, venture capitalists continued to pour money into broadband and wireless service providers as well as makers of fiber-optic equipment.
"The first quarter was another knockout," says Steve Meisel, a partner at PricewaterhouseCoopers and leader of the firm's computers and networking practice. "Although the market grew at only 11 percent over the fourth quarter, it is still double where it was just a short time ago."
Despite the strong showing in the first quarter, industry observers say venture capital investments may be leveling off. Less growth is expected in the second quarter because of stock market volatility this spring and a slowdown in the market for initial public offerings (IPO).
"The question is whether the venture capital market will stop and catch its breath in the second quarter. We're already seeing that in the IPO market," Meisel says. "There's still a lot of money in the pipeline, so we don't see any precipitous fall."
Altogether, 886 networking companies received funding during the first quarter, with the average investment topping $14 million. While the $14 million figure is consistent with last quarter, it is nearly double the average investment of $7.76 million from a year ago. The larger rounds of investment mean that start-ups are getting enough cash to sustain their businesses until the stock market calms down.
The largest deal of the quarter was a $150 million investment in Knology, a West Point, Georgia provider of broadband voice, video and Internet services to small businesses and consumers in the Southeastern region. Other sizeable deals include a $143 million cash infusion for StorageNetworks, a Waltham, Massachusetts provider of managed data storage services and $77 million for Yipes Communications, a San Francisco start-up that offers managed IP network services.