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Wednesday, Sep 28, 2022
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Tech Startups Drawing Interest From VC Funds

BY ANDREW SIMONS

Orange County’s technology crew stands to change quite a bit in the next year.

The catalyst: a pick-up in venture capital funding, particularly for the county’s technology startups. Many of them stand to grow, be bought or possibly go public.

The first quarter saw a handful of startups each draw more than $20 million in venture funding.

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“I think the environment has been stable for a couple of years now,” said Bob Holman, a partner with Miramar Venture Partners in Corona del Mar. Miramar had shied away from investing locally for some time until the past year.

“We’re encouraged by the opportunities we’re seeing,” Holman said.

Recent tech investing has touched on several sectors.

Venture capital investors sank $58 million into Orange County semiconductor startups in the first quarter , about the same as all the venture investment in the first quarter of 2004, according to the MoneyTree survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association. Software makers attracted $36 million in startup funding in the first quarter.

Overall, $132 million was raised by startups in the first quarter, more than double the previous year, according to the survey.

“It’s an environment where we’re not seeing an over-investment in any area,” Holman said. “VCs are spreading their bets to look for good technologies. They’re addressing a number of different markets.”

In the last 12 months, some 25 new technology companies in Orange County received funding, compared with about 10 in each of the previous two years.

“Looking at the activity during the past 12 months, it’s hard to believe that finding venture money was ever a difficult activity,” Holman said.

But tech companies had a harder time finding investors in 2002, 2003 and parts of 2004. The tech meltdown of a few years earlier still was burned in investors’ memories.

In the wake of the downturn, optical networking, telecommunications and some chip companies tread water or went bust as venture investors stayed away.

Venture investment instead was directed at medical device makers and biotech startups. Through 2002 and 2003, biotech startups regularly drew tens of millions in venture funds while technology companies got the cold shoulder.

But that ended last year and has continued into 2005, with several companies nabbing big fundings in the first half of the year.

The largest was by Costa Mesa-based Netifice Communications Inc., which took $29 million of a planned $55 million round of funding. Netifice makes communications gear that helps companies link corporate headquarters, regional offices, remote workers and retail outlets more easily.

Irvine-based SolarFlare Communications Inc., a maker of chips for devices that direct the flow of data on a network, raised $21 million in the first quarter. The company, which is backed by Intel Corp., among others, said it signed a funding pact worth $50 million, and will draw more funds as needed.

Other big investments in the quarter included Laguna Niguel-based Bitfone Corp., which raised $22 million. Bitfone makes software that allows wireless service providers to send software updates to a user’s phone via their networks.

So what’s made Orange County startups more attractive? For one, the people starting the companies are of better caliber, according to Randy Lunn, an Orange County-based partner of Santa Monica’s Palomar Ventures.

“You’re seeing more companies led by people who’ve done it before,” he said.

Lunn points to Aliso Viejo-based Datallegro Inc. The maker of data storage and search systems last month closed its second round of funding recently worth $15 million.

Datallegro Chief Executive Stuart Frost has headed a startup before. In 1988, he founded Britain’s Select Software Tools Ltd., which he led to a public offering in 1996.

Another is Irvine-based Zetera Corp., a developer of software that helps consumer electronics devices access and store data via the Internet.

Zetera recently raised $13.5 million in its first round of funding. Zetera’s software sits inside electronics and allows them to more efficiently send and store data on remote servers.

The company’s chief executive, Chuck Cortright, is a 30-year technology industry veteran and an alum of Orange County names AST Research and SRS Labs.

And another promising startup, according to Lunn, is Newport Imaging Corp., comprised of alums of Conexant Systems Inc., who are making a video camera on a chip.

“All three of them are addressing multi-billion markets,” Lunn said.

Another reason for a spike in tech startup investing: Venture firms have a lot of cash sitting around that they’ve been hesitant to spend.

Many venture funds face a four-year investment deadline , cash typically must be returned to investors if it isn’t spent in a set period.


Andrew Simons writes for the

Orange County Business Journal.

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