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CyberBucks Drop in VC funds part of nationwide trend



Jamul Software Firm Acquired By Australia-Based Company

The venture capital investment into local firms slowed in the second quarter but it hasn’t dried up entirely, according to the latest PricewaterhouseCoopers MoneyTree survey.

During the second quarter, 22 San Diego companies received $270 million, 55 percent below the amount funneled into local firms in the first quarter.

While that’s a substantial decrease, the number should be considered in context of what’s happening on a national level, said Jim Ingraham, a PricewaterhouseCoopers partner in San Diego.

“VC investment nationally is way down, deals are taking longer to get done, the due diligence process is far more exhaustive than it was a year ago, and investments in networking and communications companies have been dramatically curtailed. We in San Diego are not going to be immune to these national trends,” Ingraham said.

Looking at the first quarter, Ingraham noted $595 million invested by VCs then was the largest amount of any other region in Southern California, and the most ever for San Diego.

Nationally, $8.2 billion was invested into companies in the second quarter, down from $10.2 billion in the first quarter, according to the survey done in partnership with VentureOne, a financial consulting firm.

As was true in the first quarter, the majority of the new money, some $225 million went to companies in the life sciences industry, including $120 million for biotech firms, and $105 million for medical device firms.

Among the firms obtaining VC funding last quarter were Prometheus Laboratories, which received $35 million; Genicon Sciences, $33 million; NuVasive, $29.3 million; and Nereus Pharmaceuticals, $23.7 million.

Prometheus’ Series E round of funding brought the total amount raised since the company’s founding in 1995 to about $75 million. It plans to combine the latest investment with $60 million in borrowed funds for the purchase of four branded drugs it will make through contracted operations.

While biotech is getting lot of VC attention, there’s been a massive drop-off in funding of companies in telecom and networking. The MoneyTree survey reported only $12 million was invested into firms in the networking and communications sector last quarter, down from $247 million in the first quarter.

Again, it’s a trend that’s occurring nationally, but not necessarily a cause for alarm, Ingraham said.

“While there’s been a downturn in funding in this sector, this community hasn’t been as negatively impacted as some other communities, and that reflects the diversity of the technology that we have in San Diego.”

The networking and communications sector should continue to attract new investment over the next few years, but if it didn’t get any new funding in the next few quarters, Ingraham said he wouldn’t be surprised.

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Aussies Buy Marotz:

Marotz Inc., a developer of software focused on billing solutions based in Jamul, was purchased by Hansen Technologies Ltd., an Australian software company based in Doncaster, Victoria.

The purchase price for the 50-employee Marotz is $13.5 million with $2.35 million in an initial cash payment, followed by two future payments contingent on Marotz maintaining profitability over the next two years. Of the later payments, half will be cash and the rest is stock in Hansen, a developer of billing systems software for the telecommunications and utilities industries with offices in Australia, the United Kingdom, New Zealand and United States and with about 340 employees. It did about $25 million in sales last year.

Marotz CEO Bill Roetzheim said the firm he founded in 1992 had been up for sale for a year.

“I needed another company to help us grow to the next level,” Roetzheim said. Rather than seeking out some $5 million in private capital to expand, he decided the better route would be merging with a larger company.

Under the agreement, Marotz will be a wholly owned subsidiary of Hansen and continue to be managed by Roetzheim, who signed a three-year contract as CEO.

As part of the deal, Marotz employees stand to collect bonuses totaling $2.3 million and ranging from $50 to hundreds of thousands of dollars, depending on the number of ownership units they have, Roetzheim said.

Marotz was awarded the fastest-growing technology company in San Diego by Deloitte & Touche for three years between 1997 and 1999 and had sales of just under $5 million last year.

Roetzheim said the big advantage to merging with Hansen is Marotz will be able to offer already developed software while continuing to provide customized software to businesses.

Hansen is already planning to relocate its Colorado Springs office of five people to San Diego. The firm is seeking new office space of about 7,000 square feet in East County.

Right now, Marotz operates from a 4,000-square-foot wing of Roetzheim’s Jamul home. Marotz has 40 employees there, and about 10 in offices in Stockholm and Delft, Holland.


S & P; Downgrades Gateway:

Before Gateway Inc.’s layoff announcement, Standard & Poor’s downgraded the corporate and bank credit for the embattled PC maker last month, bumping it down to junk bond status.

The rating firm said Gateway’s credit rating decrease from BBB-minus to BB “reflects extremely competitive industry conditions, a declining revenue base and the company’s expectation that it will not return to profitability until fiscal 2002.”

Gateway spokeswoman Donna Kather said while the downgrade could affect the cost of borrowing in the future, “If you look at our current cash position, we have adequate flexibility for the next 12 months.”

Gateway has a $300 million line of credit it hasn’t used, and about $1 billion in cash and marketable securities on its books as of end of the second quarter.

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Carlsbad Startup Gets $10.4 Million:

California Linear Devices, Inc., a Carlsbad firm that designs and develops precision linear motors used mainly by original equipment manufacturers, said it closed the first round of permanent financing totaling $10,475,000. The lead investor was MidMark Investments of Morristown, N.J., which put in $7 million. Others included Technology Gateway Partnership of Irvine, $750,000; and Hibiscus Investment of San Diego, $500,000.

The company said it plans to use the funding for continued research and development, sales and marketing, and working capital.

CFO Jo Willhite said the specialized motors would likely replace existing hydraulic motors contained in much larger manufacturing equipment. The motors create motion with larger force and greater precision than older technology, she said.

California Linear, founded three years ago and with 22 employees, had sales of about $250,000 last year, and should reach about $3 million for the current fiscal year. It also expects to raise an additional $5 million to $8 million before the end of this year.

Send high-tech finance news to mallen @sdbj.com or fax to (858) 571-3628.

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