Local public telecom companies

As part of a conference on UC spinoffs, I presented a paper on the growth of the industry and its tie to UCSD. As part of that, I updated my January 2008 data on the small number of public companies in San Diego's telecom industry

Company	Ticker	Market Cap†	Change in 50 months
Qualcomm	QCOM	$114,900m	+78.1%
ViaSat	VSAT	$2,040m	+226.9%
Leap Wireless	LEAP	$712m	-73.6%
Maxwell Technologies	MXWL	$519m	+200.0%
Entropic	ENTR	$513m	+525.6%
Novatel Wireless	NVTL	$113m	-77.7%
Dot Hill Systems	HILL	$89m	-44.0%

† Market cap at 4pm EST Friday, according to WSJ.com

I knew that selling Qualcomm had been financially a bad decision. I had not realized that ViaSat and Entropic had done so well. In particular, Entropic has done tremendously well after a precarious start since its IPO. Meanwhile, Leap’s stock has fallen even more than Metro PCS since it rejected its repeated acquisition offers.

As an aside, Qualcomm has the 7th highest market cap on the NASDAQ: after Apple, Microsoft, Google, Oracle, Vodafone and Intel, but ahead of Cisco, Amazon, Amgen, eBay and Starbucks. There are only about 14 or 15 stocks on the NYSE with higher market cap (including IBM, AT&T, Coke and several banks and oil companies).

Starting up without VC: the old and new normal?

In my entrepreneurship research, one of the clearest trends of the last few years is how financing for startups has dried up. Banks have tightened capital requirements, pension funds and angels lost millions or billions in the market crash, and many of the former VCs are gone.

Last week, the WSJ had a great article on the national trend that was illustrated by problems of local San Diego firm. The national statistics were grim, with new firm creation peaking in 2005, and the past three years seeing net job losses.

The article illustrates the national trend by looking at the San Diego tech industry. notes the history of tech startups in San Diego dating back to Linkabit and Hybritech

It focused on serial entrepreneur Derek Smith, founder of wireless startup Tesla Controls. It also mentioned would-be entrepreneur (and UCSD assistant professor) Deli Wang and the director of UCSD’s Von Liebig Center.

From my study of the SD telecom industry going back to Linkabit, what was striking was what was not mentioned: the new normal is the old normal. Linkabit was started by three college professors who put in $500 each (and then later got a round of angel funding to expand.) Qualcomm also started with modest funding, as did most of the 1st generation Linkabit spinoffs from 1980 to 1993 or 1994.
The VC-funded model allows for faster growth, at the risk of losing control and the company. The other alternative is is bootstrapping, which certainly require patience (and send the firm towards self-funding niches), but also allows the founders more say over the firm’s direction. Bootstrapping is also the normal mode for most startups, including most of the SD telecom startups.
Other than Enterprise Partners, San Diego has never had a sizable local VC firm. Money was readily available from local (or Silicon Valley) VCs in the late 1990s, but not really before or since. Given so few SD telecom firms reached an IPO — 11 by my last count — it makes sense that VCs would shy away from funding startups with limited options for liquidity.

The software startups will probably do fine without VC. Those that want to make something will have to bootstrap using consulting work — the way that Linkabit, Qualcomm, ViaSat and others did. Rather than chasing VC that has gone away, perhaps Connect should go back to helping firms get started — as they did when I attended my first Connect event back in 1985 or 1986, soon after Bill Otterson had founded the group.

Exit strategies by San Diego firms

I was quoted heavily in Sunday’s story in the UT on the origins of the San Diego telecom industry. The interview was done last July with Kathryn Balint, who apparently left the UT in August.

Despite the lag, I still stand by what I said then. The only problem is that the book on the local telecom industry, Digitizing Communications, is moving forward but running behind schedule.

One of the points I made (also made by Martha Dennis) is that local firms are being acquired rather than seeking an IPO as has happened with so many famous Silicon Valley companies. The companies need liquidity — or must have it to fulfill promises made to VCs — and thus take the best route available.

For the book, I sat down this afternoon and tried to update our record of public San Diego-based telecom companies. (The definition of “telecom” here is as loose as possible, including defense electronics and computer networks).

Company	Exchange	Ticker	Market Cap†	Remarks
Qualcomm	Nasdaq	QCOM	$64.5b	S&P 500 stock
Leap Wireless	Nasdaq	LEAP	$2.7b
ViaSat	Nasdaq	VSAT	$624m	S&P 600 Small Cap stock
Novatel Wireless	Nasdaq	NVTL	$507m	S&P 600 Small Cap stock
Maxwell Technologies	Nasdaq	MXWL	$173m
Dot Hill Systems	Nasdaq	HILL	$159m
Entropic	Nasdaq	ENTR	$82m
One Voice	OTCBB	ONEV	?	Quoted 0-1¢/share by various sites

† Market cap at 4pm EST Monday, according to WSJ.com

This does not include companies that were acquired after IPO (like Applied Digital and Copper Mountain) or moved to SIlicon Valley after a local IPO (both AMCC and Copper Mountain). Remec IPO'd but eventually liquidated itself. I gave up on making sense of the Woody Norris companies (American Technology Corp., Norris Communications/e.Digital, Jabra).

As it turns out, the use of acquisition (rather than IPOs) as an exit strategy seems to be becoming more the norm, even in Silicon Valley. As I remarked this morning after Nokia bought Trolltech, IPOs are becoming more scarce in software. It may turn out that the roaring 90s was the last rush of startup-to-IPO miracles; very few San Diego companies made it before the 2001 NASDAQ crash, fueled by the end of FCC’s policy fantasy known as the CLEC.

I remember when Charlie Jackson sold Silicon Beach to Aldus back in 1990. Charlie told me he’d been planning on doing an IPO, but the markets weren’t favorable. Charlie did it again later with FutureWave and Macromedia — although the FutureWave sale was an opportunistic exit with the invention of Flash.

Of course, Linkabit also exited via acquisition (by M/A-COM), but after the new owners mucked it up, Irwin Jacobs and Andy Viterbi didn’t make that mistake a second time.