Communications Startups Attract Venture Funding Despite Telecom Slowdown
Telecom may be out, but communications startups are in.
That’s according to venture capitalists, which have dumped some $60 million in the past year into Orange County startups that make communications technology.
But in the same period, telecommunications service providers-the primary buyers of such technology-have kept business investment relatively flat.
So what’s the secret to getting funding?
These new technologies aim to make it cheaper for lelecom providers to do business, and they don’t brag that they are “earth- shattering” or “paradigm-shifting,” venture capitalists said.
“Anything that is disruptive will have a hard time,” getting venture funding, said Bob Holmen, a partner with Corona Del Mar’s Miramar Venture Partners LLC. “Businesses don’t want to be disrupted right now. They want to do business cheaper.”
Look at Laguna Niguel’s Bitfone Corp.
Bitfone is developing software-dubbed “mProve”-that allows wireless service providers, such as Sprint PCS Group and AT&T Wireless Services Inc. and phone makers such as Nokia Corp. and Motorola Inc., to update a cell phone’s operating system over wireless networks.
The company says its software gives wireless carriers a chance to save money and boost sales by paving the way for phone upgrades without customers having to bring the devices to a service center.
It fetched $19 million in a venture funding round last September and just announced a $1.4 million second round last week.
Bitfone software inside: helps wireless service providers update operating system
Bitfone has attracted such investors as Minneapolis-based St. Paul Venture Capital, Britain’s 3i Group PLC, Palo Alto’s CIR Ventures, Finland’s Nexit Ventures LLC and Menlo Park’s Nokia Venture Partners.
Similarly, Irvine-based SolarFlare Communications Inc., which has nabbed $30 million in funding so far, said it has communications technology that saves companies money.
SolarFlare makes chips that allow older networking gear that transfers data at two gigabits per second to interact with newer gear, which transfers data at 10 gigabits per second. Companies using SolarFlare’s chips don’t have to undergo a costly overhaul of their communications hardware.
“Any new technology that can make it cheaper to operate is interesting,” Holmen said. “The need for bandwidth continues to expand. Those companies are interesting investment plays.”
That belief has SolarFlare grabbing the attention of some big names in the venture world, including Intel Capital, the chipmaker’s venture arm, and Sequoia Capital and Foundation Capital LLC, both of Menlo Park.
Santa Monica-based Anthem Venture Partners, San Diego-based Windward Ventures and Miramar invested money in the company, too.
Irvine chip designer U-Nav Microelectronics Corp. designs chipsets for GPS systems-short for global positioning for satellite.
GPS systems allow the location of a cell phone or other mobile device to be easily pinpointed using satellites.
Chipsets are companion chips that perform a certain function in an electronic device and work along with the main processor chip.
While such chips aren’t a regular component of mobile phones or devices, it’s thought that it soon will be-a prospect that has led Finland’s Danske Venture Partners, Sweden’s Startupfactory AB and Los Angeles’ Shelter Capital Partners, among others, to invest $14 million in the company.
Irvine-based wireless chip designer Morpho Technologies Inc. is another communications startup that has received funding. It took an undisclosed investment from Motorola Inc. and other unnamed investors in October. The company said earlier this year that it had been aiming to raise $10 million.
It used to be that optical gear startups, such as Newport Beach’s Newport Opticom Inc. and Irvine’s OpVista Inc., were favored industries.
The two were funded at a time when venture investors saw that there was going to be increasing amounts of data sent over the Internet. Back then, venture capitalists funded companies that make the pipes-or speed the flow of data over them.
But such companies have found venture funding scarce because telecom carriers haven’t been investing in boosting their network capacity.
Newport Opticom has been quiet after receiving $7 million in 2001. Newport Opticom says its engineers are working on a fiber- optic switch, a device that filters and forwards data along a network.
Company officials say they’re holding steady in the difficult market.
OpVista has taken a different tack.
While the company started out with the idea it would serve the telecom market, it has temporarily switched focus to the cable market.
OpVista makes a box located on the edge of a metropolitan network that increases the amount of data that can be carried along an existing fiber line. The company originally targeted phone companies for its device, as it could boost the data that could be carried over existing lines.
But OpVista’s new focus includes the hiring of Gary Trimm, a cable industry veteran, to guide it through the cable market.
Before joining OpVista, Trimm worked as a cable business consultant. He was chief executive at cable industry company Compression Labs Inc. in San Jose. Prior to that gig, Trimm was president of the subscriber systems and the North American divisions of Scientific-Atlanta Inc. He’d worked there since 1988.
Some warn not to give up completely on telecom, despite the popularity of startups focused on the communications market versus the telecom market.
“The ripple effect through telecom is still happening,” said Randy Lunn, general partner with Palomar Ventures Management LLC, in an earlier interview. “We are, however, beginning to see new investment in the next generation of telecom technology here.”
Stealth startup Aktino Inc. in Irvine closed a $5 million to $10 million venture round earlier this year. Investors include the Irvine office of Woodside’s Crosspoint Venture Partners LLC, Foundation Capital and Miramar.
The little that’s known about Aktino is that it’s working on a design for a component that would sit inside a telecommunications network, sources said.
Aktino-Greek for “ray”-only has a few workers and likely is using the funding for hiring and research.
One of Aktino’s founders is Ray Nagele, a former product manager at Tustin-based PairGain Technologies Inc., now part of Minneapolis- based ADC Telecommunications Inc.
Copyright CBJ, L. P. Jun 16-Jun 22, 2003
