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Photonics funding dims, venture partner says

Posted: 25 Jan 2002 ?? ?Print Version ?Bookmark and Share

Keywords:photonics west conference? semiconductor? optical components? semiconductor? jds?

Though optical component startups can expect healthy future growth, they still face a tough year for financing, a venture capitalist told attendees of this week's Photonics West conference.

In his plenary speech, general partner George Ugras of Adams Capital Management noted that the situation is "not all that bad," considering photonics industry revenues have tripled since 1997. "Even if JDS Uniphase [Corp.] has taken a beating, there's still a lot of capitalization" in the market, he said.

What's happened to optical components is analogous to a semiconductor-industry cycle, in which systems makers hit a glut that results in slower businessand eventually, consolidationfor components vendors, Ugras said.

As a result, Ugras expects to see more consolidation, "not by the creation of more JDS Uniphases, but by the elimination of guys without the best of breed for point solutions," he said.

Parade of rejection

Investing is down sharply from last year, but the money is still out there. Adams was investing roughly $1 billion per quarter and is now investing at a rate "30 to 40 percent" higher, Ugras said. But during the peak of 2000, Adams' investment rose to $6 billion per quarter. Likewise, the average private-company valuation has dropped back to the $200 million level after crossing into $1 billion territory in 2000.

But the glut of startups competing for that money is resulting in a parade of rejection. Ugras estimated that 14,500 companies completed funding rounds between 1998 and 2001, and that 25 percent of them will need more money in the next 24 months. Only 9 percent of all pitches are being funded these days, compared with 22 percent during the peak, he said.

"It's just like a traffic jam. You try to get on the Bay Bridge but there are 1,000 cars in front of you," he said.

Ugras noted that the companies most attractive to venture capitalists are those with products aimed at existing infrastructure, because most of the business lies with incumbent service providers. Also, cost reduction never goes out of season; anything that can take 90 percent of the cost out of an existing piece of equipment will get attention, he said.

In the long run, Ugras believes optical components will bounce back strong, driven by demand in the areas including LAN infrastructure; metropolitan and access networks; and medical equipment.

"These are very big markets, and we are still in a much better situation than we were before," he said. Available venture capital this year is $30 billionmuch lower than the $100 billion of 2000, "but $30 billion can fund a lot of companies," he said.

Craig Matsumoto

EE Times

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