Venture capital shifts to applications in the wireless space

The wireless sector continues to capture a large share of venture capital (VC) funds in Canada, but over the past few years VC firms have changed their investment strategies. According to two of the country's major VC companies, firms developing applications and services are now garnering the lion's share of investment. Larry Perron, a partner with Skypoint Capital Corp., says that application development has become a hot investment in the wireless sector ever since the telecom and Internet bubble burst about six years ago. "I think the 3G infrastructure has already been staked in terms of the land grab so I'd be very reluctant to look at 3G UMTS-type areas," he tells Report on Wireless. "I think what we're seeing now is a trend toward migrating this from an infrastructure play to a service play, so you're absolutely looking at applications."Infrastructure is important, Perron adds, but less from an investment point of view. Applications that can facilitate either sales activity or improved service requirements through wireless access are gaining momentum. He notes that popular investments right now include companies looking to optimize service rollouts and develop wireless data services. WiMAX is also an area that is gaining some attention from the venture capital community. "I think WiMAX is still at its infancy; we still haven't seen a proven business model to support that yet. We're seeing a lot of investment in infrastructure but to get into that now I think is a little bit late quite frankly," notes Perron. "I think it's mature enough from a system perspective; there's technology out there that they can deploy. Now it's a question of making it cost-effective."David McCarthy, the managing director of BCE Capital's Ottawa office, suggests that as wireless applications grow in popularity, the focus will have to return to networks at some point to ensure that they can handle wireless multimedia services for example."It's been a few years since I've seen VCs do a lot of investing in new wireless technologies but I think that the stresses that are being put on the mobile networks by delivering video are going to require more bits per Hertz," says McCarthy, adding that "breakthrough techniques in getting efficiency out of wireless networks" is an area he expects to grow in the near future.Perron agrees that network optimization and spectral efficiency are going to be important. "An area that's also of an interest to us is spectrum optimization," he explains. "One of the biggest costs associated with rolling out a wireless network is obviously the cost of the spectrum. If you can maximize any use of that spectrum, I think that's an interesting play."The IP Multimedia Subsystem is also an interesting investment, but not something a single company can do all itself. "IMS introduces various challenges in that it's a very large investment. I don't know if you're going to get any one individual company that's going to be addressing the full spectrum of requirements of IMS," Perron says. McCarthy says that one investment that VCs are unlikely to pursue in the Canadian wireless sector is in a new carrier. "I think it's just a cut-throat, competitive market and it's just not the kind of market that VCs go after," he says. "VCs go after markets where there's a disruptive and sustainable competitive advantage and I don't see launching a new cellular network or launching a new MVNO is fitting those descriptions and, therefore, if there was investment in those areas it would probably come from other areas and not venture capital."

Venture capital shifts to applications in the wireless space

News | 04/01/2007 10:42 pm EDT

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