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VC Vision

What’s hot and what’s not in the funding world? Local venture capital funding increased in the first quarter of the year but so far in 2010 there have been some changes to what investors are interested in. “Right now it’s an interesting time in the funding world,” said Ben Kuo, founder, publisher and editor of socalTECH.com, an online publication that provides coverage of Southern California tech companies and keeps track of venture funding. Internet startups which have become much cheaper to develop and much easier to bootstrap are seeing a lot of activity as are mobile technology companies that are developing platforms for iPhone and Android, he said. “I think people understand that the shift towards the Internet is continuing, people are still shifting business and advertising and a lot of the things they do on a day-to-day basis to the Internet and there still are a lot of opportunities there,” said Kuo. Similarly, “anything to do with iPhone or Android is hot right now, but platforms, not apps, are what’s getting a lot of attention,” he said. On the other hand, technology companies in the electronics and semiconductor sector are not in investors’ sights. The sector is now considered a mature market, with a lot of competition, Kuo said. “Unfortunately it’s becoming commoditized, it can be done anywhere in the world right now and if you don’t find a point of differentiation for investors you’re going to be left on the side of the road,” said John LaValle, CFO and COO of Row 44, who is an exception to this trend. “But new and innovative companies like us can succeed. Our funding situation here is a very high class problem for us, we have received more offers for backing in the last year than we are willing to take, and we have many funding opportunities.” Westlake Village based Row 44, the developer of in-flight, wireless access systems recently received $7.8 million in venture capital, backed primarily by Boston PAR Capital, as well as a few local VC firms. High-growth field The company raised $27.75 million as part of an ongoing $60 million funding round, according to a regulatory filing May 7. “I think the reason we’re appealing to investors is we’re participating in a field that is extra needed and high growth by providing Internet connectivity to airline passengers,” said LaValle. The company’s innovative technology was also validated by a major customer, Southwest Airlines, which is the first US carrier to test satellite-delivered broadband Internet access on multiple aircraft using Row 44 technology. “They picked our company and that validated the great need for Internet connectivity and that clearly helped us in our funding efforts,” LaValle said. Like Row 44, a string of technology companies along the 101 corridor have also been funded recently, including WaveConnex in Westlake Village, and Encino-based uSamp. WaveConnex, an early stage start-up developing wireless technology based on millimeter-wave, 60Ghz signals, raised $2 million in a funding round from a single investor in June. uSamp, an online panel and technology company, announced it raised $10 million from OpenView Venture Partners of Boston June 22. “There’s definitely funding happening right now even though it’s a little bit more difficult nowadays because of the economy and what’s happening in venture capital,” said Kuo. ‘Wife factor’ With less venture capital firms in the mix today, which reflects an overall venture capital downturn, companies are having a harder time getting funded. Even angel funding is being impacted by what Kuo calls the “wife factor”, among other things. “A lot of angel investors are older retired men and the “wife factor” is their wife saying: ‘hey, we just lost all this money in the stock market, why do you want to invest in a technology start-up?’ And that does dampen the angel activity that you see,” Kuo said. Nationally total venture capital investments in the first quarter of 2010 saw a 9 percent drop year to year, however local investments are slightly up for the same period. Q1 saw $1.4 billion in deals for Southern California companies, up from $729.89 million for the same quarter in 2009, according to SocalTech.com. “It’s not easy raising money; it wasn’t easy two years ago and it’s still not easy”, said Andre De Fusco, CEO of Cynvenio Biosystems in Westlake Village, whose company recently received $2 million in mostly angel funding and some venture capital. Cynvenio – a privately funded start-up focused on the development of high performance instruments to be used for cancer research among other things –will use the funding specifically to support clinical studies in oncology. “The funding is critical because in our case it allows us not to wait to fund everything out of cash flow,” he said. Healthcare cools Although traditionally the healthcare technology sector has remained a strong area for investment, the sector seems to be cooling off, with investors starting to look elsewhere. With the exception of Cynvenio, healthcare technology companies haven’t seen a lot of funding activity recently, according to Kuo. “I think for us, the people that had already invested in the company and understand where we’re going were very supportive because we have results, we have quite a bit of progress under our belt so they were happy to re-invest,” De Fusco said. “And I think new investors view us as a later stage start-up, even though we’re only a couple of years into this. In other words, they see a relatively quick path from where we are today to producing a diagnostic product that can connect the dots between the results that we have so far and having certain types of commercial results that are appealing to them.” Investors are always looking for companies with growth prospects, that have leading positions in the market and, most importantly, have strong management teams that have had prior successes in their industry, he said. “I think investors today are looking for concrete results and they are looking for market validation,” said De Fusco. “I think the market for oncology is huge. There’s a very large, multi-year mega trend at work here and we are part of that trend. I think we can save lives more importantly and make a very good business out of this.” Cynvenio is anticipating a larger VC round in the near future.

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