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Finance Venture funding still pours into San Diego

Venture capital funding flowed freely in San Diego during the past quarter, with 40 local firms attracting about half of the $884 million invested in all of Southern California, according to a recent industry survey.

Led by huge investments in health care and biotech firms, the region garnered more than $441 million in new capital investment during the last quarter.

The amount was the largest in the region for the second consecutive quarter, both in terms of dollar volume and number of companies that attracted investments, according to the survey by Growthink, a Los Angeles-based consulting firm that advises emerging growth firms in raising capital.

“San Diego’s health care sector, mostly its pharmaceutical and biotechs, are really hot,” said David Lavinsky, Growthink president. “Also, they have a couple of large venture capital firms that are focused on that sector.”

Of the nine largest investments in Southern California, five were based in San Diego, led by $70 million into Xcel Pharmaceuticals. Other top local firms and their funding amounts are: AirFiber Inc., $50 million; Prometheus Inc., $35 million; NuVasive, Inc., $29.3 million; Genicon Sciences, $27 million.

Among the local VCs that were the most active in providing capital to relatively new enterprises were Forward Ventures, which did six deals. Enterprise Partners, Mission Ventures and IngleWood Ventures, all based in San Diego, each did three deals during the past quarter.

“We’re finding the venture investment environment in San Diego to be more attractive than ever before as it relates to early stage companies,” said Jeffrey Starr, a general partner with Mission Ventures.


Showing Promise

Akonix Systems, a Downtown software firm, was among Mission Ventures’ investments last quarter. The year-old startup obtained $5 million in first-round funding from Mission and Windward Ventures, another San Diego-based VC.

“The product Akonix makes is enterprise software for community and communication enablement for large corporate Web sites,” Starr said. “We were impressed to the degree that they bootstrapped themselves.”

While many startups have a business plan for generating revenues and later, profits, Akonix was different in that it was showing sales without any outside investment, Starr said.

Mission Ventures, with $288 million under management, has a fairly balanced portfolio, putting its investor money into startups in software, semiconductors, telecommunications and health care.

Prometheus Inc., a local pharmaceutical firm, was more indicative of the heavy investment into biotech related businesses. It received $35 million in its Series E round that closed last quarter, bringing the total raised since its inception in 1995 to about $75 million.

Mike Swanson, CFO for Prometheus, said the company combined the $35 million in equity investment with $60 million in senior notes. It used the funds to purchase the rights to four branded drugs it will produce through contracted operations. It also used part of the funds to retire corporate debt.

From sales of less than $1 million in 1997, Prometheus recorded sales of nearly $20 million in fiscal 2000. Today, the company has some 170 employees, up from about 100 a year ago, Swanson said. By year’s end, it should be about 190 people, he said.

Prometheus is hiring new people in sales and marketing, and lab and medical technicians, he said.


An Attractive Dot-Com

TargetSafety.com is an anomaly among the local companies attracting attention of investors. It’s a business-to-business provider of safety training courses over the Internet, but despite the blowup of the dot-com market, it was able to attract $3 million last quarter from the National Fire Protection Association.

Unlike many startups, TargetSafety is another firm that not only is showing revenues, but is close to breaking even, said CEO Bruce Kaechele.

With its current funding in place, TargetSafety is in a much better position to either obtain more venture backing or acquire a smaller company to improve its operations, Kaechele said.

In Southern California last quarter, about $74 million was invested into firms in the e-content and commerce industries. “That sector is going down,” Starr said. “The companies receiving funding (in that group) are infrastructure companies, those that make content management easier or make streaming video and data easier.”

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