[opendtv] VC kills fund because technology not worth the effort

  • From: "Manfredi, Albert E" <albert.e.manfredi@xxxxxxxxxx>
  • To: <opendtv@xxxxxxxxxxxxx>
  • Date: Tue, 10 Oct 2006 10:56:18 -0400

I've always had my doubts about these public metro area Wi-Fi nets,
specifically based on IEEE 802.11. This article, however, seems to imply
that what infrastructure needs to be built has been built, and that now
the problem is to provide services to make these viable.

I think the problem is with the technology. I think people expect the
coverage of a metro area Wi-Fi net to be ubiquitous, including indoors
and outdoors, and are surprised to find it ain't so. Reminds me of the
hype that deliberately confuses digital TV with interactive TV, and with
Internet and broadband access. You can only confuse people so long. The
truth always comes out in the end.

Bert

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VC kills fund because technology not worth the effort

Richard Martin, Unstrung
(10/10/2006 5:36 AM EDT)
URL: http://www.eetimes.com/showArticle.jhtml?articleID=193200033

Describing the environment for high-tech venture funds as "terribly
weak," Sevin Rosen Funds , a venture-capital firm with large bets on
telecom and wireless companies, said over the weekend it is abandoning
its "Fund X," or tenth fund, and returning money already collected to
investors. Though hardly unprecedented - several funds returned money to
investors during the dot.com crash of the early 2000s - the move, the
firm conceded, is "radical." The question now is, what does it imply for
future funding for startups in wireless and telecommunications?

Founded 25 years ago, with offices in Dallas and in Silicon Valley,
Sevin Rosen has backed several seminal tech companies, including Compaq,
Lotus, and Cypress Semiconductor Corp. More recently it has moved
aggressively into wireless, backing infrastructure providers like
MetroFi Inc. and Wayport Inc. as well as wireless-management startups
like Traq Wireless. In a letter to investors announcing its decision to
abort the fund (first reported over the weekend by The New York Times),
Sevin Rosen wrote, "While good returns from any given firm's portfolio
is certainly a possibility, the statistics have clearly shifted in an
unfavorable direction. The venture environment has changed so that
overall returns for the entire industry are way too low and even the
upper-quartile returns have dropped to insufficient levels."

That depends on how you define "insufficient levels," according to other
VCs who remain bullish on backing telecom and wireless startups.
Acknowledging that "The IPO market certainly isn't what it used to be,"
Fred Wilson, a partner at Union Square Ventures in New York, notes on
his blog that the mergers and acquisitions market, by contrast, is quite
healthy. "Maybe they can't get us the valuations 'that venture investors
expect' [as the Sevin Rosen letter put it], but that is the venture
industry's fault," adds Wilson, "because we've overfunded our companies
to the point where we need a half-billion-dollar exit to produce a
decent return."

The telecom sector, Wilson says, has moved on from "the phase where the
infrastructure gets built," to "the phase where the services get
deployed on top of that infrastructure." That means that straight
infrastructure plays - even cutting-edge ones like MetroFi, which is
dedicated to building a nationwide WiFi-based broadband network - will
not produce the returns that venture investors have grown accustomed to.

Others in the relatively small and venture capital community speculate,
off the record, about possible tensions between the partners at Sevin
Rosen, and note that VC firms that have closed down funds in the past
have often made public pronouncements about the weakness of the market
as a form of cover for problems in their own operation.

A spokesperson for Wayport, which has been backed by Sevin Rosen since
its first round of funding in 1998, said the firm declines to comment on
the Sevin Rosen situation at this time.

It's also worth remembering that Sevin Rosen still controls hundreds of
millions of dollars from previous funds and that this move hardly
indicates that it is abandoning the field altogether.

At the very least, however, the Sevin Rosen decision forecasts a tougher
market for wireless and telecom startups in the next few years. It also
means that executives at those startups dreaming of big payoffs via IPOs
might have to dial back their expectations a bit.

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