2001 VC Market Tight, But Active
TeraGlobal Cuts Staff, Loses Promised Funding
by Mike Allen
Senior Staff Writer
To even a casual observer, the capital investment market was considerably tighter last year.
But 2001 was still fairly active with a total of 5,988 investment deals in the nation totaling more than $325 billion, according to B2B Data Corp., a San Diego-based research firm.
The deals cover the gamut of investment activity including IPOs, venture capital fundings, private placements, convertible debentures and equity lines.
“Last year was a little down from 2000, but way down from the peak of activity in 1999 when there were more than 8,000 deals,” said Harry Henry, COO for B2B.
Trends that were evident last year was a nearly complete shut down of the IPO market, and a shift by VCs to eliminate riskier companies from their portfolios. VCs were also much less inclined to make investments in early stage companies, Henry said.
“We’re seeing a lot of consolidation by many VCs. There was a lot of silly money floating around in the late 1990s, and a lot of silly concepts that got funded,” he said.
Over the past year, VCs have been scrubbing their portfolios, betting on the winners, and cutting those companies that don’t show prospects for surviving, he said.
Rather than pumping money into startups, the VCs are more apt to make second and third round fundings to existing portfolio companies, leaving many emerging firms out in the cold.
“Those people (startups) are going to have to rely on angels and boot strapping until they can get the attention of VCs. It’s not impossible, but it’s not as easy as it used to be.”
While B2B Data doesn’t compile local figures, Henry said the data shows a huge uptick in funding to local companies operating in the biotech and pharmaceutical industries, and a drop off in funding to those in high-tech, particularly telecom.
Another trend by many companies, especially larger ones, is the issuance of more corporate debt. Lower interest rates spurred many companies to issue lower interest corporate bonds and retire earlier, higher interest debt, Henry said.
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TeraGlobal Cuts Staff: San Diego-based TeraGlobal Communications Corp., a maker of software for delivering real-time voice, video and data over the Internet, was forced to cut 11 employees, or 19 percent of its staff, late last month in response to an earlier investor pulling out.
Company spokeswoman Eden Nannery said VC Spencer Trask pulled out of an earlier commitment to participate in the latest round of funding.
In December, the company said it had lined up new financing between $750,000 and $2 million. The principal investors were identified as WallerSutton 2000 LP, Spencer Trask Investment Partners LLC and Lincoln Associates LLC.
Nannery said Spencer Trask, which had previously invested less than $100,000 in an earlier round, informed the company in early January that it would not participate in the latest round, leading to the job cuts.
TeraGlobal now has 46 full-time employees, including 38 at its San Diego headquarters. The remainder are in regional sales offices.
The company said it is actively reviewing a number of alternatives for obtaining new capital, but it has yet to decide anything.
According to TeraGlobal’s most recently filed third quarter report for the nine months ended Sept. 30, it had a net loss of $6.1 million on sales of $581,000, compared to a net loss of $14.1 million on sales of $262,000 for the like period of 2000.
Once a high-flier in the high-tech run-up, TGCC reached its peak in 1999 at $18 but has since plummeted to below a dollar for most of 2001 on the over the counter bulletin board. It closed Jan. 29 at 8 cents, and had traded in the past year between 7 cents and $1.23.
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Magis Gets VC Funds: Magis Networks Inc., a San Diego-based maker of wireless chipsets for local area networks, said it received second round financing from existing investors Vulcan Inc., Bay Partners and Crescendo Ventures.
The dollar figure on the investments was not disclosed, except to say that the initial VC fundings were doubled.
Earlier, the company said Motorola also increased its investment.
Founded in 1999, Magis expects to begin sales of its wireless chipsets this summer. The product is used in television set top boxes and permits the simultaneous distribution of Internet data, video and audio throughout the home or office.
Magis has about 80 employees at its Del Mar Heights office and will contract for its manufacturing.
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Kodak Completes Encad Purchase: Encad Inc., the local maker of wide format inkjet printers is now a division of Kodak Co., after the Rochester, N.Y.-based corporation completed its acquisition of the firm Jan. 24.
The deal announced last November paid Encad shareholders $2 per share in Kodak stock, or about $25 million.
Kodak, a former customer of Encad’s and a member of the Dow Jones Industrial index of the nation’s 30 largest companies, will manage its new division at the current San Diego office and may expand its staff, but by how much hasn’t been determined yet, said a spokesman.
As part of the deal, former Encad CEO Terry Vandewarker gives up his CEO title to Regina Pizzoli, who was formerly Kodak’s general manager of U.S. and Canada. Vandewarker retains the president title.
Encad now has 287 total employees including 258 in San Diego.
Founded in 1981 by David Purcell, Encad once employed more than 400 persons.
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HNC Buys Product: HNC Software said it acquired a complementary software product from Texas-based Trajecta Inc. for $6 million.
The software allows businesses to develop optimal marketing actions. HNC makes predictive software geared to customer relation management.
Send news of tech investment activity to
mallen@sdbj.com.
