Dear Colleague:
What a year 2001 has been for venture-funded network startups, as well as
those investors that made big bets in the network and telecommunications
industry. In contrast to 1999 and 2000 that in retrospect can now be
considered (with credit to Alan Greenspan) years of "irrational
exuberance," this past year has been nothing but doom and gloom. As a
result of overinvestment in the industry, unsound business models, lack of
customer demand for new products and services, the economic recession, and
the events surrounding 9/11, we've seen an unprecedented number of network
equipment and service provider startups fail. Not "gee, we only made $100
million from an acquisition," but startups forced to close their doors,
layoff all employees, and return virtually nothing to their investors. VCs
that once delivered nearly hundred-to-one returns to their limited partners
are now struggling to have their funds reach breakeven.
As a result of this very challenging environment, venture capital firms and
those companies they have funded have had to radically change their behaviors:
* VCs are being forced to spend considerably more time working with the
management teams of their existing investments, reducing their opportunity
to evaluate and fund new companies.
* Some companies are being reduced to a skeleton staff or placed in a "deep
freeze" until market conditions improve.
* Newer VC funds are being used to help bail out troubled companies that
were funded in previous rounds, or just to fund an orderly company shutdown.
* Cash is king, with startups doing everything possible to reduce their
burn rate until capital markets improve and/or they can obtain another
round of funding.
* IPOs of network-related companies will remain rare until service provider
and enterprise customers begin spending again on equipment and services,
and the publicly traded stocks of existing suppliers begin to recover.
And yet it could be argued that much of this new behavior may signal a
return to normalcy. That networking companies could go public before
generating revenues (let alone achieve profitability); that companies could
be funded with only the objective of being acquired by Cisco, Nortel, or
Lucent; or that a dozen VCs would fund the same type of technology or
product targeted at the same market segment; are abnormal situations not
likely to be repeated anytime soon. Instead, we may be back to the normal
(i.e., longer than 18 months) time that it takes to develop any new
business, attention to business fundamentals, and a recognition that
networking companies must be built to last before they can attract the
attention of investors.
So what are the characteristics of companies that will be successful in
this new environment? Going after the right target market will be more
important than ever. Great management teams, backers, and partners will
remain critical success factors As will be raising sufficient capital to
last until positive cash flow can be achieved. However, the current
networking industry shakeout will mean that those companies that do survive
will find fewer competitors to contend with.
This year for the upcoming NGN Ventures conference April 23-24, 2002, in
Burlingame, CA, ngnventures.com , we've tried very
hard to feature those companies that we believe have a shot at surviving
and thriving in this challenging network and telecom industry environment.
First, we've chosen those categories that represent the most attractive
target markets, including optical and semiconductor components, mobility
and wireless, metro networking, converged voice, next-gen switches and
routers, and the OSS tools to manage everything; for each category, we've
invited those startups that may have the best shot at becoming successful.
We've also invited key VC firm partners, public company executives, and
customers to provide a "board level" perspective. Finally, we intend to
provide a "state of the industry" and synthesis of overall conference
trends, and hope to ask the hard questions you'd expect us to ask of
session participants. (New this year at NGN Ventures, David Passmore of
Burton Group will join Dr. John McQuillan as conference co-chairman,
following their roles as co-chairs at the last Next Generation Networks
conference in November.)
Two years ago, when the networking industry was riding high and everyone
was making money, everyone thought they knew the formula for success.
However, after an extremely difficult 2001, it's clear that those formulas
don't work anymore. Please join us at NGN Ventures to learn what leading
network industry investors, executives, and technologists think will pay
off in 2002 and beyond.
If you would like to look at the agenda for the NGN Ventures conference
next spring, where we highlight the best and brightest of the next
generation of network startups, please visit
ngnventures.com . When you register, please use
VIP Code C1ND1MCQ. We hope to see you there in April!
David Passmore
Research Director, Burton Group
NGN Ventures 2002 Conference Co-Chair
Dr. John M. McQuillan
President, McQuillan Ventures
NGN Ventures 2002 Conference Co-Chair
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PREPARE FOR NGN VENTURE: ACCESS NGN 2001 ONLINE!
You can see and hear the content of any sessions you may have missed at
NGN2001 at the NGN virtual conference site at ngn.u4all.com , where
there are audio and slides of the keynotes and portions of our opening and
closing remarks are available for free. All three days of conference
sessions can be purchased for your viewing now and in preparation for NGN
Ventures.
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MARK YOUR CALENDAR FOR THESE UPCOMING CONFERENCES ON RELATED NETWORK
TECHNOLOGIES:
VoiceCon2002 - February 25-28, 2002 voicecon.com
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