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CyberBucks San Diego tops L.A., Orange in VC funding

Matthews Replaces Retiring Yates as Head of the S.D. Tech Coast Angels

More than a half-billion dollars in venture capital money poured into San Diego-based companies during the first quarter of the year , more than any other region in Southern California, according to a recent report compiled by Growthink, Inc.

The Los Angeles-based research and consulting firm said a total of 29 local firms obtained $555.4 million in capital financing, beating out L.A., Orange County and the Ventura/Santa Barbara region.

“Typically, San Diego wouldn’t attract more than Los Angeles, but in the past quarter, that’s what happened,” said David Lavinsky, president of Growthink. “We attribute the increase to mostly the biotechnology firms in the area. All sectors are still doing pretty well (in finding capital) but this was especially true of biotech.”

San Diego’s capital total exceeded Greater Los Angeles, where 34 firms drew nearly $437 million in capital. Nineteen Orange County firms received $182 million, while seven firms in Ventura/Santa Barbara got $80 million.

All totaled, more than $1.2 billion was invested in 89 Southern California companies during the quarter.

Two San Diego firms were the top two capital recipients in Southern California, with PacketVideo getting $100 million, and Syrrx Inc. accumulating $54 million.

After those two, the next largest investments in area firms went to Zucotto Wireless Inc., $35 million; Santarus Inc., $33.2 million; CancerVax Corp., and Triad Therapeutics, Inc., $30 million each.

Besides biotech, the next-largest sector to attract the most investment cash was one Growthink labeled as “connectivity industry,” which includes wireless telecom equipment and networking firms.

Besides Zucotto, other San Diego connectivity firms attracting capital were Entropia Inc., $23 million; Continuous Computing, $21 million; and Astute Networks, $16 million.

Lavinsky said an emerging trend uncovered in this quarter is the increase of investment money flowing from corporations. For example, Intel Inc. made six separate investments in the region, while Qualcomm Inc. made three.

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Top Angel:

Vern Yates, who founded the San Diego Band of Angels in 1997, retired as president of the renamed organization, San Diego Tech Coast Angels, last week.

To take his place, the group named Charles Matthews, who has been a member of the group since 1998. Yates, who remains on the board, was honored by the organization at a dinner May 8 held at the UCSD Faculty Club.

Last year, Yates played a key role in merging the group with similar angel investment groups in Orange and Los Angeles counties. The local group has some 50 members, all of whom have a minimum net worth of $1 million and are required to invest a minimum of $50,000 annually.

The target of the angels’ money are early stage companies with sales between $250,000 to about $2 million annually that show potential for growing much larger.

The group is very selective, based on its track record. Since last September when the group amended its name and affiliation, the local Tech Coast Angels looked at some 110 emerging businesses. Of those, 70 were rejected fairly quickly. Of the remaining 40, only 10 actually were funded with about $6 million in seed capital, Matthews said.

The biggest factor in making or breaking a deal is the quality of a company’s management, Matthews said. Since the high-tech fallout, due diligence remains tough. The biggest difference is the group getting a bigger bang for its dollars, commanding larger valuations of companies who need their money, he said.

Matthews, 62, has been a San Diego resident this time around for 12 years. Previously he was the founder and CEO for a Toronto high-tech firm, AlphaNet Telecom, that provided in-room faxing service to hotels, and voice-over protocols for IP networks.

Matthews also headed up two other public companies in the computer industry, Micro Systems Inc., and Cipher Data Products. He obtained undergraduate degrees in physics and electrical engineering from the Royal College of Science-Imperial College of Science in London, and graduate degrees in business from the University of London and Stanford University.

TargetSafety Gets First Round:

TargetSafety.com, a Rancho Bernardo Internet firm providing online federal OSHA safety training, said it completed a $3 million first round of funding from the company’s partner, the National Fire Protection Association.

The NFPA, formed in 1896, is the primary nonprofit organization that sets codes and standards for the fire and life safety, and electrical industries.

TargetSafety CEO Bruce Kaechele said the money will be used to expand the company’s software technology and enhance the delivery of courses to existing and new customers. Founded in 1999, the company has some 35 clients, nearly all of which were signed on since the beginning of the year.

Kaechele said his firm could get to the break-even point if a large contract that they’ve been working on for four months comes through. But even if it doesn’t, he expects to get to profitability by the end of the third quarter.

TargetSafety has 15 current employees, but that should grow as it adds more clients, he said.

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WEBcard Finds Funds:

WEBcard Technologies Inc., a San Diego maker of CD-ROMs the size of a business card, received $500,000 in first-round funding from Sunrise Ventures LLC of Rancho Santa Fe, and Tom Tierney, a member of the San Diego Tech Coast Angels.

President Ken Sully said the initial round of money for the 4-year-old company will allow it “to get dressed up” for the second round of financing it hopes to complete in the coming months. He said the firm is seeking about $5 million.

“There are certain things we have to do to attract that kind of money, and that’s what this funding will allow us to do,” Sully said.

WEBcard had its design on the CD cards in the shape of a hockey rink patented earlier this year. The cards contain 64 megabytes, enough for a multimedia presentation that can include voice, music and video. The company has 18 employees and more than 300 customers, including Honda, Motorola and Kodak.

“We did $1.7 million in sales last year and we are on track to be a $10 million company by 2002,” Sully said.

Sorrento Cuts 19 Jobs:

San Diego-based Sorrento Networks Corp., which makes optical networking equipment, said it won’t hit first-quarter revenue estimates of $16 million. For the quarter ended April 30, the Nasdaq-traded firm said it will hit about $13 million, up 17 percent from the previous quarter.

The company said a planned order was postponed, contributing to the decline.

As a way of reducing overhead, the firm cut 19 positions, 14 of which are local. The company has 254 employees, including 240 locally.

Sorrento, the result of a reverse stock split with Osicom Technologies in January, trades under the former company’s symbol, FIBR.

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Avexus Forms, Buys Impresa:

Avexus, Inc., a newly formed San Diego company, purchased Impresa, a software firm with offices in San Diego and Minneapolis and a subsidiary of Irvine-based Epicor Software Corp., for an undisclosed price.

Impresa, with 50 employees, including 40 in San Diego, had annual sales of about $10 million and provides enterprise solutions for maintenance, repair and overhaul activities in the aircraft and defense industries. It has about 100 customers, including BFGoodrich, Boeing, General Electric, the U.S. Navy and U.S. Air Force.

Daou Losses Less:

San Diego-based Daou Systems reported a net loss of $622,000 or 3 cents a diluted share, on revenues of $12.7 million for the quarter ended March 31, compared with a net loss of $4.65 million or 26 cents per share, on revenues of $17.6 million for the same period in 2000.

The provider of information technology services to the health care industry attributed the reduction in losses to reduced operating costs through a layoff of employees and reduced overhead, and terminating underperforming contracts.

Daou, which had its stock delisted from Nasdaq last month after it fell below $1, said it had $10.9 million in cash and equivalents on hand, compared to $10.6 million at the end of 2000.

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


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