Burlington, Massachusetts–Venture capital (VC) investments in Bluetooth-related ventures between Q4 1999 and Q3 2000 constituted less than 1% of total placement of VC funds in the U.S., according to a new research brief by the Burlington, Massachusetts-based DVG Research Unit of Daedalus Venture Group, LLC, a venture research and advisory group focused on the emerging communication technology sector.
“These numbers indicate that VCs are still asking tough questions about Bluetooth,” says Adam Needles, director of DVG Research. “Specifically, where are the compelling applications that will drive long-term demand for this technology? They’re also looking at competing standards, such as the 802.11b wireless networking protocol, and thinking pretty seriously about where it is in this ecosystem that Bluetooth fits best.”
DVG Research found that VC investments in semiconductor ventures represent a disproportionate amount of total Bluetooth capital placements. Analysis of this data points to what DVG Research believes has become an artificial demand for Bluetooth chips across the communication technology space. The company cites irresponsible supply-side projections showing tremendous growth in the number of Bluetooth-enabled devices as driving manufacturer demand for chips, although there still is no widespread, demonstrated market demand for the technology at an application level–raising the question of whether this demand is artificial.
Bluetooth ventures classified as semiconductor companies represented slightly more than approximately 74% of total Bluetooth-oriented VC investments over the past year, according to DVG Research, while application-oriented Bluetooth ventures barely garnered more than approximately 23% of VC dollars. This points to a VC investment trend that eventually may have a negative downside. Many VCs investing in the Bluetooth market space are focused on semiconductor companies because of their perceived higher-margin business models, but DVG Research believes this will prove to be a short-term phenomenon as the marketplace rapidly becomes over-saturated with chip manufacturers while still lacking in real applications for the technology.
Within the next year, DVG Research predicts that prices for Bluetooth chips could easily plummet–greatly reducing VC investors’ margins–and this trend could be further exaggerated without serious growth in applications that ultimately will drive longer-term demand for Bluetooth chips.