The telecommunications industry is in turmoil, but venture capital investment in the sector remains strong. As FirstCapital has found a total of $6.4bn has been invested by venture capitalists in communications software since beginning of 2001, which accounts for 42% of all venture investment in software.

Much of this money has been invested in new innovations to combat some of the problems the communications industry faces. An expectation of explosive demand for bandwidth fuelled an enormous build out of capacity in the late 90's and the industry is now facing an enormous overcapacity problem. However, as David Sexton, Advisor to FirstCapital and former President of Cable and Wireless Global Markets asserts, "out of chaos comes opportunity".

Venture capitalists gathered at a seminar entitled "Telecom IP Services: Not if, But when" organised by FirstCapital concurred that IP Services is an area which has shown increasing interest from the Venture capital community. Phil Smith, Business Development Director and Head of New Ventures at Cisco believes, "the real beauty of IP is it is everywhere and it is the de-facto way of communicating."

Mr Sexton highlighted that "The key drivers will be process improvements and infrastructure consolidation. The Service Provider market is now consolidating as scale players and incumbents fight for survival in an environment of massive competition. However these are prerequisites to convergence. In the long run mobile and desktop is all there is. All other systems are legacy."

Fred Destin, Director of OM Technology Investments at Dresdner Kleinwort Wasserstein contended that optical switching at the core and then IP into the LAN will be two interesting developments.

Jason Purcell, CEO of FirstCapital, concluded that market conditions are clearly difficult but there are still attractive opportunities for venture backed companies. In particular, companies that can help to manage the complexity of networks and the proliferation of devices will find ready markets.

Source: VentureOne, Venture Capital Investment in US and Europe, Q12001 - Q32002

For further comment or information contact: Jason Purcell, CEO FirstCapital on 020 8563 1563, info@firstcapital.co.uk