Net phone venture peaking?

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

The question's raised in light of a $200 million investment into New Jersey VoIP provider Vonage, which Vonage confirmed on Monday. To be sure, venture investors continue to pour cash into companies involved with voice over Internet Protocol, technology that lets an Internet connection double as a phone line.

In fact, the $200 million raise is the largest one-time venture round since 2000, according to Vonage.

Yet, there's growing sentiment among VoIP insiders that after investing $1.6 billion 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 voice over Internet Protocol entrepreneurs to give the sector a miss," Joshua Jaffee writes on TheDeal, a Web site specializing in venture capital.

Yet deals continue to pour in. The new Vonage funding round--led 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. Vienna, Va.-based SunRocket says it plans to raise another $15 million by June.

"Voice over Internet Protocol 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 fervor for VoIP cools off, it'll impact 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 America Online have entered the VoIP market.

"I think this is just the very, very beginning of 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."