Familiar formula will land venture capital money

Telecom companies are down, but not out, and those that are rising from the ashes of the slow economy are now seeking venture capital funding to help launch them into competitive positions.

Telecom companies are down, but not out, and those that are rising from the ashes of the slow economy are now seeking venture capital funding to help launch them into competitive positions.

Companies that are actually getting the money, says Walter Wilowaty, chairman of the Capital Formation Work Group for the Telecommunications Industry Associ ation (www.tiaonline.org), are finding that an old formula rings true: A sound business plan and ready customers.

Wilowaty was one of several venture capitalists who spoke at TIA Ventures 2002: The Return of Telecom, a forum held recently in McClean, VA. He says the industry is in a state flux, with older telecom companies disappearing. But what is bad news for some companies, Wilowaty points out, is translating to good news for others who are replacing the old with more innovative technology, and gaining market share.

Wilowaty points to the wireless LAN industry, for example, which he believes is making inroads as it opens up new ways of connectivity. Such innovations are attracting the attention of investors, he says. And installers will be needed to set up this equipment.

"There is an appetite for that, and the venture community says that is where the rich application layers are coming from next-the things that corporations need today," says Wilowaty.

He says today's investors are searching for innovative manufacturers, but also points out that innovation alone is not enough. Investors are looking for a company that has a solid product, a good business strategy, an effective management team, and at least some customers who are willing to pump in some revenue right off the bat.

Following the terrorist attacks of Sept. 11, 2001, analysts worried that the venture capital market would experience a dramatic hesitancy. But Wilowaty notes that several companies that participated in a venture capital forum shortly after the attack managed to pick up needed funds.

He believes the level of available funding has plateaued, and while venture capitalists once shored up their investments in existing accounts, they are now pumping it into new ones. Investors are seeking deals that will promise them a solid exit strategy, and they want to be sure that they see a return on their investment.

The most recent TIA forum attracted more than 160 attendees, including executives from more than 30 investment firms with combined holdings exceeding $10 billion in capital. Participants also included 15 emerging-growth companies seeking primarily second and third-round funding.

"At the last forum, we turned away about as many companies as we had presenting, and that says companies are aggressively looking for capital," says Wilowaty.

He says that in the last venture capital forum in which he took part, 60% of the companies were looking for venture capital, 30% were in the early stages of receiving it, and the rest were in the second round of receiving it. "One company raised over $100 million, and several raised over $10 million," says Wilowaty. "They were looking for the next round."

Keys to getting telecom funding

  • An innovative idea;
  • An effective management team;
  • A sound business plan;
  • At least a few customers.

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