Is venture funding back on track?
Investors give $141 million to Sonoma County tech companies last quarter, but it may be too early to call it a turnaround
Calix employees Huan Tseng (Left) and Jane Liu test new software on current hardware at the Calix plant in Petaluma.
The Press Democrat / Jeff Kan LeePublished: Sunday, October 25, 2009 at 4:03 a.m.
Last Modified: Sunday, October 25, 2009 at 4:03 a.m.
Venture funds pumped $141 million into Sonoma County technology companies last quarter -- more than they did in all of 2008 -- a signal the county's tech sector is climbing out of recession.
Investors are finding bargains at promising startups and later-stage companies with good track records, said David Hehman, who heads North Bay Angels, a Sonoma County business group that backs tech entrepreneurs.
"It's a great climate to be an investor," said Hehman. "The valuations are very attractive."
But venture funding across the United States still is down more than 30 percent from last year, according to a pair of surveys released last week.
"The slow recovery we've seen for venture capital has faltered," said Jessica Canning, research director at Dow Jones VentureSource, which tracks private equity deals.
"As liquidity and fund-raising lag after the economic meltdown in 2008, investors have no choice but to keep a tight rein on investments," she said.
Depending on how you measure it, venture funding is either rising or dropping.
U.S. venture funds spent $5.1 billion in the third quarter, down 6 percent from the previous three months, according to Dow Jones. Most venture cash went to information technology, biotech and green tech startups.
But another survey, prepared by the National Venture Capital Association and PricewaterhouseCoopers, found that venture funding increased 17 percent during the period.
"The increase in venture capital investing this quarter is very encouraging," said Tracy Lefteroff of PricewaterhouseCoopers.
"With signs pointing to an economic recovery, albeit a slow one, we're likely to see the pace of investing continue to strengthen over the next several quarters."
While there are early signs of a turnaround, it's too soon to say whether the U.S. venture market is back on track, said Mark Jacobsen, co-founder of O'Reilly AlphaTech Ventures, a 4-year-old fund partnered with Sonoma County's O'Reilly Media.
"We'll know by the end of the year," he said.
Venture firms cash out when startups go public or get acquired by larger companies. But the recession has made it harder to finance IPOs and mergers.
"There's a lineup of IPOs for companies waiting in the wings," Jacobsen said. "It hasn't hit the gates yet."
Petaluma's Calix Networks, which scored Sonoma County's largest third-quarter venture deal, is a prime IPO candidate, according to telecom analysts.
Calix, which makes optical networking technology for communications providers, received $50 million in late-stage funding last month. It was the largest Sonoma County venture deal since March 2008, when investors pumped $65 million into TriVascular2, a Santa Rosa biotech company.
Calix stands to gain from the $7.2 billion U.S. broadband stimulus program, which provides grants and loans for rural phone companies to extend their broadband networks. Calix already serves 40 percent of rural service providers, the company said.
Calix officials won't say whether the business is considering an IPO.
Another telecom equipment maker, Force10 Networks, raised $30 million in private equity in August. Force10 merged with Petaluma's Turin Networks last March and reported business rose 25 percent in the quarter ending Sept. 30, compared to the preceding quarter.
Calix and Force10 are growing as phone, cable and other network operators upgrade their systems to handle more digital traffic, according to analysts.
Sonoma County's medical technology sector also saw activity last quarter. Santa Rosa startup Direct Flow Medical raised $40 million in September to develop a replacement heart valve for patients too frail to undergo open-heart surgery.
The funds will pay for additional human trials aimed at getting Direct Flow's prosthetic aortic valve approved for the European market in 2011, the company said.
Biotech analysts predict a multibillion-dollar global market for such products, which could be used to repair the heart valves of thousands of patients too sick for more invasive procedures.
Direct Flow's valve is delivered on the tip of a catheter, a thin tube inserted into a patient's artery. The device is snaked through the artery to the heart, where it is expanded in place of the old valve.
Medical device makers Medtronic and Edwards Lifesciences have similar products for sale in Europe. But so far, the technology hasn't been approved for the U.S. market.
Medical technology is attracting investors despite the economic downturn, said Steve Weiss, a Healdsburg investor who co-founded North Bay Angels.
"People are going to demand quality care and innovative solutions," he said. "Venture funds are still investing in that area."
Green technology also found backing in the third quarter. Soladigm Inc., a Santa Rosa startup that moved to Silicon Valley last month, raised $20.7 million in the period, according to filings with U.S. regulators.
Soladigm is developing switchable glass, an energy-efficient window technology that blocks light in summer and lets it through in the winter.
The technology combines thin-film optical coatings and semiconductors to control light penetration, according to Soladigm.
Soladigm hasn't released a product yet and company officials didn't return a call for comment.
The economy's downturn hasn't stopped innovation, said Jacobsen, whose $52 million investment fund backed several startups during the quarter.
"There are still a lot of entrepreneurs with great ideas," he said.
You can reach Staff Writer Steve Hart at 521-5205 or steve.hart@pressdemocrat.com.
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