Net phone venture peaking?

How long can venture capital firms sustain their fervour for the Net phone industry?

The question has been raised due to a $200m investment into voice over Internet protocol (VoIP) provider Vonage, which Vonage confirmed on Monday. Certainly, venture investors continue to pour cash into companies involved with VoIP, which is free software that lets an Internet connection double as a phone line.

In fact, the $200m Vonage raise is the largest one-time venture round since 2000, according to the New Jersey-based company.

But there's growing sentiment among VoIP insiders that after investing $1.6bn into VoIP during the past four years, it's time for venture capital firms to look elsewhere to invest such large sums.

"Now would be a good time, it seems, for venture capitalists and would-be VoIP entrepreneurs to give the sector a miss," writes Joshua Jaffee on TheDeal, a Web site specialising in venture capital.

Yet deals continue to pour in. The new Vonage funding round -- lead by Boston-based Bain Capital -- doubles the amount invested in Vonage by venture capital firms and Vonage executives. The cash is earmarked for the operator's expansion to Asia, and even more Vonage advertising to hammer its brand name home, said Vonage Chief Financial Officer John Rego. Vonage Chief Executive Jeff Citron remains the majority owner.

Even lesser-known VoIP providers, like SunRocket, still find it easy to attract new venture capital. Virginia-based SunRocket plans to raise another $15m by June.

"VoIP has reached a tipping point, as mainstream consumers begin to adopt broadband telephony as a replacement for their traditional telephone service," Michael Krupka, a Bain Capital managing director, said in a statement.

If venture fervour for VoIP cools off, it'll have an impact on SunRocket and other smaller Net phone operators. Providers like these -- with a few thousand subscribers and small amounts of cash on hand -- are underdogs now that major cable providers and Internet providers such as AOL have entered the VoIP market.

"I think this is just the very, very beginning of the next wave in communications," Vonage's Rego said. "But it would be quite difficult now for a start-up to go and get this level of funding."