The intense competition IDG Ventures General Partner Michael Greeley’s seeing now for internet investing has him using the “f” word — as in “frothy” — even though the numbers and activity reported by the National Venture Capital Association with PricewaterhouseCoopers and Thomson Financial aren’t quite the heights of the bubble days. Still, the $5.3 billion VCs invested in 714 companies during 3Q05 puts the numbers on track for a three-year high. The telecommunications wireless sub-category total of $455 million for the quarter was a four-year high. For the year to date, 114 wireless-related companies took in $984 million compared to 2004’s total of 135 companies and $1.1 billion.
Of course, one VC’s froth is another’s healthy marketplace. Mark Heesen, president of NVCA: “Are we concerned about a growing frothiness here? The answer is absolutely not. There is simply not enough money coming into the asset class to support the kind of exuberance we saw in the late 1990s, and that’s a good thing.” Early stage investment isn’t rising at the same level as other aspects, something the association is tracking.
One difference between now and then, from my observations: the levels of funding being sought are dramatically different. A VC can support multiple start-ups for the money one used to take back in the day. The flipside of that — as VC Bill Gurley told the P-I, “You have to be careful. I see what I would suggest are features being funded as companies right now.”
One area for concern where he’s concerned: what he calls “a baffling amount of interest” in wireless content. Ignition Partners’ Steve Hooper is avoiding that area because too many deals are emerging: “… when everybody is doing one and everybody is getting a lot of funding, that tells us that there is maybe too much money going in there.”
Just a guess, mind you, but I’d expect heightened interest in obtaining investment when it comes from start-ups afraid of missing the moment.
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