The Return of the Network

Venture capitalists used to love networking. I’m not talking about schmoozing over wine and swapping business cards. I’m talking switches, routers, traffic monitoring, wireless, fiber and anything else that facilitated data transfer.

Networking devices and management tools were hot in 2000 when venture capitalists invested $2.55 billion in U.S.-based startups offering networking appliances, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association, based on data provided by Thomson Reuters (publisher of PE Week).

In 2008, investment in the sector leveled off, with VCs investing only $63.4 million in networking management startups, according to the latest MoneyTree Report.

But there seems to be a resurgence of investor interest in the space.

During the first three weeks of the second quarter, VCs have put nearly $75 million into startups working on some part of the network.

The reason? A lot of it has to do with cloud computing and the ever-increasing demands put on corporate data networks. Just ask the CEO of ExtraHop, one of the nine companies to secure funding recently: “While [networking management companies] may not be trendy, there are large problems, universal problems that have not been addressed in corporate IT networks,” says Jesse Rothstein.

But it also has to do with increased capability. Storage and processing power is cheaper than ever and that makes it easier for some network-focused services to keep up.

A quick roundup of network-related startups below: