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RealTime IT News

Wireless Players Re-Arm VC Units

The U.S. mobile market is changing. With third-generation networks and feature-packed phones, companies that once sold annual contracts or re-styled handsets are now in the applications and content business.

The possibilities for increasing sales and customer loyalty are enormous, but picking a winner is more art than science (raise your hand if you predicted ringtones would soon be a billion-dollar business).

To improve their odds, wireless players are replenishing their venture capital funds and scouting for startups whose technology could find its way into their offerings.

The latest is NTT DoCoMo . In July, the Japanese wireless network operator will open a new subsidiary in San Jose, Calif., to invest in early-stage U.S. companies. DoCoMo Capital will invest $100 million over the next decade.

"San Jose is in the center of Silicon Valley where startups are flourishing," a DoCoMo spokesperson told internetnews.com. "It is ideal for gathering information on promising ventures, discovering such ventures and collaborating with them after investment."

DoCoMo knows the way to San Jose. Its U.S. research and development labs, which focus on mobile Internet technology, are there and will serve as a link between the parent and its portfolio.

NTT DoCoMo has played on the fringes of the venture capital industry for years. It invested in a Mobile Internet Capital fund in 1999 and a Gobi Partners fund in 2003. Five months ago, it pumped $3 million into Linux OS maker MontaVista.

But NTT DoCoMo sees DoCoMo Capital as "the best way to ensure high information-gathering capability and the ability to influence ventures through proactive, flexible control from DoCoMo."

A few miles up Highway 101 is BlueRun Ventures (BRV) in Menlo Park, Calif. Formerly Nokia Venture Partners, BlueRun recently raised $350 million and is putting more emphasis on marketing.

Nokia , the Finnish cell phone giant, remains the largest investor in the new fund, which also includes capital from other institutional investors.

In addition to mobile startups, BlueRun targets early-stage consumer electronics and IT firms. However, the lines between the three sectors are blurring. Initial backing ranges from $2 million to $8 million.

Motorola is also making a push. The venerable Chicago-area handset and network equipment maker said Motorola Ventures will write checks for more than $100 million this year. In the six years since its founding, the unit has averaged between $75 million and $100 million in total financing annually.

This year's boost is driven by several factors, including more attractive opportunities in IP and other technologies, as well as an improved corporate balance sheet.

Industry-watchers say mobile and networking giants need to mine startups for new ideas and technologies.

"Innovative growth is gone from the traditional network and technology behemoths, such as Cisco, Nortel, Nokia, Motorola and even Qualcomm," said Bob Egan, president of Mobile Competency, a Rhode Island-based research firm.

In addition, semiconductor firms such as Intel, and traditional venture funds are eyeing wireless opportunities. They are attracted by growth potential or synergies with their products or other portfolio companies.

All of this, of course, is great news for entrepreneurs, especially those working in hot areas, such as security, communications software and games.

"The only difference between now and pre-2000 is that the business plans are written in PowerPoint and Word -- not just on napkins," Egan said.