The accounting books at Enterprise Partners Venture Capital were beginning to show a strong inclination to telecom companies even before the firm hired the top investment executive from an international telecom company.
“The returns on an absolute dollar basis were much higher in telecom in the last five years then they were in health care,” said Drew Senyei, one of now six partners with Enterprise Partners.
On Aug. 23, the La Jolla-based venture capital firm lured vice president of business development Nasar Partovi away from the Canadian telecom Nortel Networks Corp. and introduced him as partner and managing director. His new responsibilities include identifying emerging companies in the optical network market.
Beginning several years earlier Enterprise Partners started diversifying their portfolios from fully entrenched funding in early stage health care companies. That investment strategy had been the firm’s trademark since Chuck Martin and Jim Berglund created the firm in 1985.
The shift from funds fully immersed in health care companies, such as “Enterprise 1,” to portfolios containing both telecom and health care firms, as in “Enterprise 5,” was a gradual evolution, Senyei said.
– Entering A New Data-Driven Cycle
And now that Partovi is in place, the largest VC firm in Southern California, with more than $745 million invested in over 100 companies, is prepared to enter a new data-driven market cycle.
“I think we’re at a major transition from electrons to photons as being the primary carriers of information in the network,” Senyei said. “I would equate us to being in the phase of vacuum tubes and radios as far as the photonic networks go.”
He believes the complete cycle is still 10 to 15 years away from completion.
Dan Pittard, managing partner for IdeaEdge Ventures, a San Diego incubator focused on mobile Internet companies and an Enterprise Partner investment, said the strategy shift really began when partner Bill Stensrud was hired.
Stensrud was the partner that convinced Partovi to join the firm. They both sat on the board at San Diego-based AirFiber Inc., when Partovi was with Nortel.
Stensrud and Partovi were not available for comment.
“If you look at the six partners they already have,” Pittard said, “(Partovi) adds even more telecom expertise.”
– Investing In Telecom Expertise Makes Sense
Regardless of whom the firm hired, investing in telecommunications expertise makes sense for venture capital firms, said John Busch, director of UCSD Connect’s Spring Board.
“There’s so much going on in terms of telecom and it’s everywhere,” he said. “It just makes sense for the successful venture guys in town to beef up their ability to tackle that market.”
Currently the direction of the telecom market is towards moving data faster by expanding bandwidth, Busch said.
Whether that’s done through smaller components of fiber-optic networks or through wireless technology will be played out in the coming years.
If there is a venture capital firm in San Diego that can pick the most promising early stage companies it’s Enterprise Partners, said Fred Cutler, director of UCSD Connect. Cutler was founder of DigitalStyle Corp., a local software firm that received venture funding from Enterprise Partners before a $36 million merger with Netscape Communications in 1998.
Interest in technology companies may have waned since April, Cutler said, but companies focused on developing infrastructure, especially transmitting data on the Internet, will continue to receive serious consideration from venture capital firms.
“We are still in the very early innings of this Internet ballgame,” Cutler said. “The smart money is going toward building the Internet for the long term. By building now for the long term, those players that can participate in that are going to be the huge winners in the second half of the game.”
