Wireless leading tech resurgence, VCs say
By Scott Foster, Ottawa Business Journal Staff
Mon, May 17, 2004 12:00 AM EST

Consumer demand for mobility, an unwillingness to compromise and a constant need for "more, faster, everywhere" will guarantee continued success for the wireless industry, venture capitalists from Ottawa and Boston say.

"Just look at how quickly people are (trading in) their personal devices. It's amazing," said Glenn Egan, managing director of telecommunications at the Business Development Bank of Canada.

Egan was part of a panel that spoke to members of the high-tech community last week at the Ottawa Congress Centre during an event sponsored by TiE Ottawa-Montreal.

Egan was joined by Peter Diedrich, partner at Skypoint Capital, and Raj Alur, managing director of communication technology at St. Paul Venture Capital in Boston, which is an investor in Ottawa-based Metconnex.

All VCs were optimistic a high-tech resurgence is underway and said the wireless space is leading the charge.

Egan noted the "flood of IPOs is back" this year and interest from strategic investors has returned.

"IP telephony and even parts of optical are resurging," said Diedrich.

"Macro indicators" have been positive and tech companies in such areas as semiconductors and telecom have been doing a good job, said Alur, pointing to Cisco Systems' strong fiscal third-quarter 2004 results as evidence.

Nonetheless, the market hasn't reacted to these results the way it should due to outside factors, namely the war in Iraq, he said, which have had a negative impact on the NASDAQ.

"We're in the business of returns and I think, even in Canada, most VC returns are heavily correlated to the NASDAQ," he said. "At the end of the day, the NASDAQ is a proxy for all of us."

A bullish Egan called wireless a "hypergrowth area", one that is probably over-invested.

"But then all hyper-growth areas are," he said, adding this doesn't mean wireless will go the way of long haul optical and suffer from burnout.

As for some players in the optical space, such as makers of long-haul equipment, they will have to bide their time as service providers "wait for their pipes to fill up", said Diedrich.

"There's no (reason) for them to upgrade optical systems for another two years or so."

At the same time, Diedrich emphasized this timeline is changing all the time, thanks to players in the space who continue to come out with affordable, disruptive technologies that service providers can't resist.

Company traits that are irresistible to VCs include the ability to solve customer "pain points", said Diedrich. Pain points exist whenever service providers run into roadblocks and cannot take the existing technology any further, he said.

"Pain points do exist. They may exist where it's difficult to develop a business, but with the right innovation they can be solved."

Before Diedrich considers funding a company for the long term, there must also be involvement with Tier 1 original equipment manufacturers.

Skypoint is looking to build more in the Ottawa area, he added.

"Our second fund is still largely available. So we're looking around for opportunities. And we're not in any particular rush."