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Technology Stocks : Up and coming optical startups -- Ignore unavailable to you. Want to Upgrade?

To: Raymond Duray who wrote (52)	10/19/2000 1:59:35 PM
From: Raymond Duray	Read Replies (1) \| Respond to of 84

Contrarian View of the Mania for FO start-ups Thread, Here's something that theStreet.com published today. Some interesting charts on the website. thestreet.com Warning Sign: Keep an Eye on VC Investment in Optical Equipment Start-Ups By Adam Lashinsky Silicon Valley Columnist 10/19/00 7:01 AM ET URL: thestreet.com SAN FRANCISCO - An item here Tuesday suggested that savvy investors can learn about future problems in the public market by paying attention to me-too behavior in the private market. In other words, because venture capitalists pile into the same things at the same time, you can tell not only what will be the hottest sectors for IPOs (assuming there is an IPO market), but also where the inevitable pain will follow. That's because, as VCs overinvest in start-ups, they have to rush them to market, thereby saturating the public market and leading to an eventual collapse of the house of cards they've built. As the charts below demonstrate, then, the behavior for optical-networking companies likely will follow business-to-consumer and business-to-business e-commerce companies. Sure, optical networking -- the new networks that transmit data by light impulses rather than electrons -- is "real." Component companies like JDS Uniphase (JDSU:Nasdaq) and Corning (GLW:NYSE) and equipment makers like Corvis(CORV:Nasdaq), ONI Systems (ONIS:Nasdaq) and Sycamore Networks (SCMR:Nasdaq) are generating meaningful revenues beyond the dot-com sector's wildest dreams. But that doesn't mean the glut of investments won't take its toll. Consumer-oriented and business-oriented e-commerce companies were the darlings of the previous two VC cycles. However, shares in the great majority of the publicly traded companies that rushed quickly with their VC's cash into the public's arms have since collapsed. Logic dictates that optical will be next. According to the newsletter VentureWire, VC funding to consumer Internet companies (I hate writing B2C and B2B, but that's what I'm talking about here), peaked in the first quarter of this year with 131 investments totaling $2.3 billion. Ouch. Imagine what the internal rate of return (the way VCs measure their success) must be on those funds. Since then, funding for consumer companies has dipped below $1 billion, a goodly portion of which undoubtedly was attributed to investments by venture capitalists simply trying to prop up existing portfolio companies. The picture in business-to-business Internet companies is similar. Funding there peaked in the second quarter, with 221 investments totaling $2.6 billion. Valuations of publicly traded business-to-business concerns plummeted several months after their consumer brethren. Now consider the chart for optical start-ups. Barely a day goes by that an issue of VentureWire doesn't include a notice of funding for a new "optical" concern. Investments in that sector haven't peaked yet, increasing by $100 million in the third quarter to $1.9 billion. Optical investments have peaked in absolute terms, however. There were 74 investments in the second quarter, but 66 deals in the third quarter. Note, finally, that overall VC funding in the information technology field, as computed by VentureWire, peaked in the second quarter at $28.5 billion and fell dramatically to $23.5 billion in the third. That shows you that the VC business is slowing down despite the recent raising of several funds greater than $1 billion. Everyone suffers when the front end of the VC/entrepreneurial/investment-banking complex slows. Consider this a warning. <snip>