The story of Ultra Wideband (UWB) has been written, rewritten and revised, but there’s still no sense of how it will end. Investors threw cash at the sector seven years ago, and while many of that first generation of UWB companies survived, they predate the user standards that the Federal Communications Commission (FCC) released last year-rendering much of the pre-ruling technology worthless. Now venture capitalists are back for a second run and are seeding a new crop of UWB companies that may compete with startups in the popular Wi-Fi space.
Take Staccato Communications Inc. Founded by UWB industry veteran Roberto Aiello, the San Diego company closed a $7.5 million Series A round in April with commitments from Allegis Capital, Bay Partners and Charles River Ventures. It is developing a UWB chipset that can be used by consumer electronic and PC makers to transmit large data files wirelessly.
Instead of using a Universal Serial Bus (USB) port to download photos from a digital camera, a UWB radio chip can send electronic files wirelessly to a computer equipped with a UWB receiver-replacing the wire with wireless technology. It’s a cable replacement technology that could solve the problem of how to bring high-bandwidth networks into the home. And it may provide an answer for a question that consumer electronic device makers are struggling with, says Rajeev Chand, senior equity analyst with San Francisco-based research firm Rutberg & Co.: “How do I get my TV connected to my PC connected to my hip bone?” Consumer electronic device makers are already behind it. Philips Electronics and Mitsubishi are two founding members of the UWB Working Group.
“The need for high-capacity, low-power solutions for downloading photos, moving MP3s or downloading video from a camcorder to a PC is very real today, but it’s still limited by the connectors you need to use,” says Bill Tai, a partner in the Menlo Park, Calif., office of Charles River.
UWB uses short, quick pulses to transmit up to 500MHz of data about 30 feet over a broad range of frequencies. Since it sends out the data in short bursts, it’s a low-power solution for transmitting data.
Friend or Foe?
UWB technology is emerging as both a competitor and complement to other wireless standards like Bluetooth or Wi-Fi. There is no debate that over short distances UWB is able to send larger amounts of data using much less power than competing technologies. For example, 802.11b (Wi-Fi) transmits data at a rate of 11 megabits per second, while UWB transmits data at more than 10 times that speed. Since you need a speed of about 40 megabits per second to send good-quality streaming video, UWB looks like an optimal technology to wirelessly transfer images from, say, a camcorder to a TV.
Because it is restricted to distances of 30 feet, UWB isn’t seen as a major competitor to Wi-Fi in sending data wirelessly around corporate campuses. Wi-Fi is the most widely deployed technology for wireless data transmission. Intel’s springtime launch of a Wi-Fi chipset means that all new PCs will be born with embedded 802.11b capabilities. UWB, then, becomes the optimal technology for connecting lots of peripheral devices-cameras, music equipment, video players-to personal computers.
There is debate among analysts about how large the market will be for UWB. Allied Business Intelligence, for one, predicts that sales of UWB-enabled electronics and chipsets could reach 45 million units and produce revenue of about $1.4 billion by 2007. Others, meanwhile, wonder whether device makers will drag their feet in adopting the technology and finalizing UWB standards. For their part, venture capitalists are convinced that the UWB market will be big enough to sustain a handful of UWB suppliers. Since 1996 venture firms have invested $186 million in a dozen UWB startups, according to Rutberg.
The origins of UWB technology can be traced to World War II, when German actress Hedy Lamar patented a technology for splitting a broadcast among many radio frequencies to avoid jamming. The U.S. military refined the technology and used it to spy on the Russians during the Cold War by sending short bursts of coded information that couldn’t be detected along a single slice of spectrum. Over the next 30 years the technology languished inside the military because of concerns that UWB’s wide-ranging signal would interfere with other wireless communications systems used by airlines or the military. After four years of research and debate, the FCC ruled in February 2002 that UWB technology could be used without disrupting other communications and thus opened the floodgates for technologies being developed by startups like Staccato.
Staccato is one of a new generation of UWB developers-companies that sprung up after the FCC ended its inquiry in February 2002. A month after the FCC ruling, Wisair, a UWB chipset developer in Tel Aviv, began operations with $4.3 million in venture backing from Apax Partners Israel. Also in March 2002, SkyCross of Melbourne, Fla., released an UWB-enabled antenna to the market, after raising $7 million from BancBoston Capital, Dalewood Associates and Milcom Technologies.
The first generation of venture-backed UWB companies was funded when investment in the wireless sector was at its peak-between 1996 and 1998, when venture capitalists poured $2.4 billion into wireless companies, according to the PwC/VE/NVCA Money Tree Survey. Because their technology predates both the FCC’s ruling and a definition of a UWB standard, the first wave of UWB companies are struggling to revamp their technology after having burned through more than $150 million in development.
One UWB chipmaker, XtremeSpectrum Inc. of Vienna, Va., has raised $62.6 million from venture capitalists since its founding in 1998. Its backers include Alliance Technology Ventures, Cisco Systems Inc., Delmaq Ventures, Granite Ventures, Motorola Ventures, Novak Biddle Venture Partners, POD Holdings and TI Ventures.
Chipset developer TimeDomain of Huntsville, Ala., has raised $89.8 million in six rounds of financing since 1996. Its backers include Fuqua Ventures, Marconi Ventures, Noro-Moseley Partners, Siemens Venture Capital and WorldCom Ventures.
Even Aiello jumped the gun: Staccato Communications is his second go at UWB technology. He is the founder of Fantasma Networks, a Mountain View, Calif., UWB company incubated by Paul Allen’s Interval Research in 1996 that raised $11.6 million from venture capitalists before being acquired by Pulse~LINK of San Diego in 2001. That company is now testing its UWB with cable television operators to provide video-on-demand and interactive television applications.
“Clearly it was way too early to invest in UWB prior to the FCC’s ruling and no real standards activity yet,” says Dino Vendetti, a general partner with Bay Partners in Cupertino, Calif. Vendetti has been following the UWB sector for five years. “Once the FCC made its ruling, we started talking to the team and putting work into this technology again,” he says. “As things unfolded, a significant amount of momentum began building around this industry.” Bay Partners seeded Staccato with $500,000 in March 2002.
A year from now, Staccato expects to have lined up a set of corporate partners in the consumer electronics industry to help fund product development and validate the market’s need for UWB chips. Also on tap for the coming year is a set of RF chip prototypes from the company. Most of its energies, however, will be spent on making sure UWB standards fall into place so that device makers will be ready for the technology when it hits the market one to two years from now, Aiello says.
“From a venture capital perspective, Staccato doesn’t have any of the baggage of the older UWB companies,” Vendetti says. “At this point the market has a reasonably good chance of developing.”
While it is not struggling to update technology that predates the FCC’s ruling like Time Domain or XtremeSpectrum, Staccato faces challenges that plague the entire UWB industry. It is still unclear how big the market for its technology will be. It’s a double-edged sword: Are venture capitalists investing too much in UWB? Or too little? The company has not laid out a clear timeline for bringing its technology to market and could be racing against other established chipmakers. At the same time, lobbying continues from all sides for the FCC to update and change its rules on UWB’s usage. Meanwhile, the consumer electronics industry is still working to create a UWB standard, a prerequisite for startups to ink deals with consumer device companies.
“Since the market size is so uncertain and there are established leaders in the space, we’re not recommending new company formation,” Rutberg’s Chand says. “We’re not necessarily bullish on startups. At this point a company needs something fundamentally different to distinguish itself from the pack. There are no winners yet.”