After the Lull, It's a Venture-Fund Rally

Following two straight quarters of declining venture funding,

According to the latest Money Tree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association, the total investment for the quarter was 1 $254.9 million, up more than 100% compared with the previous quarter, and up 16% from the same period a year ago. The vast majority of this increased investment went to companies in the drug or telecom businesses.

While the 21 companies that received investments were down from 25 in the second quarter, the average investment climbed to $12.14 million, up from $4.88 million in the second quarter.

But averages can be deceiving. The average third-quarter investment refleeted the impact of Vonage Holdings ("David Versus Goliath?" September 13, 2004), an Internet phone company based in Edison. It threw the curve out of whack by picking up a whopping $105 million from investors that included Meritech Capital Partners and 3i. Take out the hefty investment in Vonage and the average venture deal for the quarter was a more earthbound $7.5 million.

The third-quarter cash should help Vonage in its head-to-head battle with giants like AT&T to dominate the growing voice-over-Internet business. Vonage also made out well in federal court last July when it learned that New York state would not be permitted to regulate it as a phone company.

Running a distant second behind Vonage in the phone industry was Control Point Solutions, a telecom-expense management firm with headquarters in Carlstadt. It secured an infusion of $14 million. Control Point was formed in August through the merger of Broadmargin and Teldata Control. Broadmargin investor ABS Capital Partners led the investment round.

Outside the telecommunications arena, some drug companies also beat the average investment during the quarter. Reliant Pharmaceuticals of Liberty Corners led the drug sector with $20 million from a group that included Invemed Catalyst Fund and Bay City Capital Fund III. ImpactRx, the developer of a subscription database to help pharmaceutical firms in their marketing efforts, picked up funding from Merck Capital Ventures.

Meanwhile, Valera Pharmaceuticals of Cranbury, a company formerly known as Hydro Med Sciences, picked up $11.6 million in a round led by new investor Psilos Group Managers, a New York City-based venture capital firm. Valera's long-acting hormone implant, Vantas, was approved by the U.S. Food and Drug Administration last month for the treatment of advanced prostate cancer.

The uptick in Garden State funding bucked a downward national trend. U.S. venture capital outlays dipped in the third quarter when investments of $4.3 billion were distributed among 601 companies. The funding was less than the prior-quarter total of $5.9 billion but equal to the $4.3 billion disbursed in the third quarter of 2003.

For the first nine months of 2004 New Jersey firms collected $576.8 million, up 20% from last year. Nationwide venture investments climbed during the period to $15.3 billion, up 15% from $13.3 billion lajit year. At the current investment pace, venture capital funding will beat last year's total of $805.3 million in New Jersey and $18.7 billion nationwide.

The third-quarter results suggest that for additional firms in the drug and phone industries, the answer to the question, "Can you fund me now?" will be, "Yes."

ARCHIVE SYSTEMS

Investment: $8.5 million

25 Commerce Road

Fairfield 07004

Ph: (973) 287-1300

Fax: (973)808-1042

URL: www.archivesystems.com

The company is moving from minding the warehouse, where vitcal corporate records are stored to being a front-office player as well. It is trying to be a leader in outsourcing document processing for accounts-payable and finance departments. Archive's sales reached $12.5 million last year, up 25% from 2002. Avon, the Manhattan-based beauty products firm, became a client this year. The investment was led by Edison Venture Fund of Lawrenceville.

CADENT HOLDINGS

Investment: $3.3 million

640 Gotham Parkway

Carlstadt 07072

Ph: (800) 577-8767

Fax: (866) 943-7466

URL: www.orthocad.com

Orthodontists and other dental professionals send impressions of their patients' teeth to Cadent, which operates the OrthoCAD computer modeling system. Cadent generates 3-D computer models that are easier to store than plaster models. The company is in Carlstadt and maintains an R&D facility in Tel Aviv. Investors include J.P. Morgan Partners, Apax Partners and Schroder Ventures. Proceeds will boost sales and marketing and R&D efforts.

CONTROL POINT SOLUTIONS

Investment: $14 million

201 Route 17 North

Carlstadt 07070

Ph: (201) 460-2374

Fax: (201)933-8425

URL: www.controlpointsolutions.com

Control Point is in the business of managing telecommunications expenses. It was formed from the merger of Broadmargin and Teldata Control in August 2004. The two firms have reduced their clients ' network expenses by more than $1.5 billion and employ more than 400 people in seven states and overseas. Existing Broadmargin investor ABS Capital Partners led the investment and was joined by new Investor JMI Equity, a venture capital firm focused on investing in enterprise software and business services companies. ORIX Venture Finance, which provides financing to mid- to late-stage companies, pnvided the debt financing. The investment will be used to complete the merger and for growth capital. As a result of the financing, Harry Gruner, a general partner at JMI Equity will join Control Point's board of directors. Deric Emry, a general partner at ABS Capital, is an existing board member due to his role at Broadmargin.

DVTEL

Investment: $500,000

65 Challenger Road

Ridgefield Park 07660

Ph: (201)368-9700

Fax: (201)368-2615

URL: www.dvtel.com

DVTeI says it can improve security management in both the government and private-sector markets by integrating an organization 's security systems with its computer network. The company's goal is to become a dominant player in the $2 billion closed circuit television market. SCP-Private Equity Partners, a Wayne, Pennsylvania, venture capital firm, led the investment. Yaron Eitan, a partner at SCP, is chairman of DVTeI.

ELUSYS THERAPEUTICS

Investment: $10 million

10 Bloomfield Avenue

P.O. Box 102

Pine Brook 07058

Ph: (973) 808-0222

Fax: (973) 808-0322

URL: www.elusys.com

The company scored $6 million in September 2003. A developer of antibody-based therapies, Elusys last year received an additional $3.5 million from the U.S. Department of Defense for the development of its ETI-205 drug to remove anthrax toxin from the bloodstream of people who have become infected (NJBIZ, October 25, 2004). Investors include Essex Woodlands Health Ventures and INVESCO Private Capital Group.

ENPIRION

Investment: $13 million

75 North Street

Bloomsbury 08804

Ph: (908)479-1422

Fax:(908)479-1412

URL: www.enpirion.com

Enpirion develops power systems on a chip that, among other benefits, can extend battery life in portable devices. The company was founded in 2001 by technologists from Bell Labs. Investors included Canaan Partners and Silicon Alley seed Investors.

EXPERTPLAN

Investment: $8.3 million

50 Millstone Road

Building 400, Suite 100

East Windsor 08520

Ph: (609) 918-2500

Fax:(609)918-1328

URL: www.expertplan.com

ExpertPlan provides Internet-based retirement planning services. It was founded in 1999 to pursue the underserved market for small- to medium-sized companies without retirement plans. Investors include Liberty Venture Partners, Meridian Venture Partners, Gamma Investors, Milestone Venture Partners and NextLevel Venture Partners.

IMPACTRX

Investment: $14.3 million

307 Fellowship Road, Suite 300

Mount Laurel 08054

Ph: (856)273-0221

Fax: (856)273-7959

URL: www.impactrx.com

ImpactRx maintains a subscription database detailing doctors' prescribing behavior for pharmaceutical companies to use in honing their marketing efforts. This round was led by new investor 3i and included previous investors Merck Capital Ventures, Mediphase Venture Partners and Oxford Bioscience Partners.

IPP OF AMERICA

Investment: $4.8 million

330 Passaic Avenue

Suite 1

Fairfield 07004

Ph: (973)830-1737

Fax:(973)830-1576

URL: www.ipppays.com

The company lets cash-paying consumers make electronic bill payments at local stores. IPP's network currently extends to 27 states and more than 2,800 locations nationwide. Edison Venture Fund led the round; proceeds will support farther growth in the U.S. market for the company 's bill payment services and the rollout of international money-wiring services to Latin America.

JUVENT

Investment: $1.2 million

500 Atrium Drive

Somerset 08873

Ph: (732) 748-8866

Fax: (732) 748-0004

URL: www.juvent.com

The company has developed a medical device it says could help prevent osteopomsis and other skeletal and circulatory ills. The device is a vibrating platform, about the size of a typical bathroom scale, that transmits high-frequency sound waves through a person's feet and up through the skeleton. Juvent was formed last fall by a group of investors and researchers who are convinced that this so-called dynamic motion therapy can strengthen bones and prove a boon to women with osteoporosis who cannot tolerate conventional medications. The company hopes to have a version of the device on the market in Europe next year. The latest round of financing came from angel investors.

KAYAK INTERACTIVE

(Formerly known as JamSession)

Investment: $3.75 million

212 Carnegie Center

Suite 201

Princeton 08540

Ph: (609) 945-7240

Fax: (650) 372-0651

URL: www.kayakinteractive.com

Last month, this Princeton company moved its headquarters to San Mateo, California, to be closer to new CEO, gaming executive Keith McCurdy, who was hired in August. Kayak has created a software platform that supports the technology needed for mobile, multi-player gaming. Investors include VantagePoint Venture Partners, TL Ventures and EnerTech Capital. Last January, Kayak received $11.75 million in first-round financing. The company will maintain its offices in Princeton.

KODEOS COMMUNICATIONS

Investment: $6 million

111 Corporate Boulevard

Suites A-C

South Plainfield 07080

Ph: (908) 222-7800

Fax: (908) 222-2393

URL: www.kodeos.com

The company develops products to boost data transmission over optical networks. Founded in 2001 by former Bell Labs and Lucent Technologies staff, the firm is equally funded by Highland Capital Partners and Jerusalem Venture Partners. Kodeos started up with $12 million and received $6 million in the summer of 2003.

LAMINA CERAMICS

Investment: $2 million

120 Hancock Lane

Westampton 08060

Ph: (609) 265-1401

Fax: (609) 265-9905

URL: www.laminaceramics.com

Lamina Ceramics employs proprietary technology to bond unfired ceramic to metal for use in packaging electronic components used in communications. The technology could slash costs for vendors using other packaging materials. Lamina, a Sarnoff spinoff, received funding from Morgenthaler Ventures. The company has also picked up cash from KEMET of Greenville, South Carolina.

LEMUR NETWORKS

Investment: $6.2 million

703 Broad Street, Suite B201,

Franklin Common

Shrewsbury 07702

Ph: (800) 732-8990

Fax: (732) 450-9699

URL: www.lemurnetworks.net

Founded in April 2001 by former AT&T engineers, Lemur makes software that helps cable companies improve their customer service through better billing and account management. Investors include Rho Ventures of New York City, Sevin Rosen Funds of Dallas and Silicon Alley seed Investors. Last year Andrew J. Audet took over as CEO from Lemur co-founder Seyhan Civanlar who continued as chief technology officer.

MAGNOLIA BROADBAND

Investment: $11 million

64 Old Highway 22, 3rd Floor

Clinton 08809

Ph: (908) 735-0372

Fax: (908) 735-7239

URL: www.magnoliabroadband.com

Established in 2000, Magnolia develops semiconductors with innovative signal processing capabilities to improve the performance of cellular handsets. Investors include SCP-Private Equity Partners, DFJ Gotham Ventures, ECentury Capital and Selway Partners.

NANOOPTO

Investment: $3.6 million

1600 Cottontail Lane

Somerset 08873-5117

Ph: (732) 627-0808

Fax: (732) 627-9886

URL: www.nanoopto.com

NanoOpto develops passive optical components based on nano-imprint lithography for use in optical networking equipment. The latest round of financing comes from existing equity partners Morgenthaler Ventures, Bessemer Venture Partners, Draper Fisher Jurvetson Gotham Ventures, Draper Fisher Jurvetson New England Ventures, U.S. Trust's Excelsior Venture Partners HI and the Harris & Harris Group. CEO Barry Weinbaum says the money will enable the firm to move into full production of its products and start recording revenue. NanoOpto has now raised a total of more than $30 million in venture capital.

POWERZYME

Investment: $7.4 million

436 Springfield Avenue

Summit 07901

Ph: (908) 277-4434

Fax: (908)277-0169

URL: www.powerzyme.com

The company, which is developing small fuel cells made from natural enzymes, has trademarked the phrase "Intense Clean Power." PowerZyme envisions putting its batteries into cell phones, power tools and laptop computers, among other things, and having them run longer than currently available portable power sources. Investors include Arete Ventures, Rockport Venture Partners and SAM Private Equity.

RELIANT PHARMACEUTICALS

Investment: $20 million

110 Alien Road

Liberty Corner 07938

Ph: (908) 580-1200

Fax: (908) 542-9405

URL: www.reliantrx.com

Reliant develops and markets branded pharmaceutical products. The investment was led by Invemed Catalyst Fund and included Bay City Capital Fund III, business interests of the P ritzker family, BayStar Capital and the family interests of Ernest Mario, Reliant's Chairman and CEO.

VALARAN

Investment: $400,000

214 Carnegie Center

Princeton 08540

Ph: (609)716-7200

Fax: (609)716-8463

URL: www.valaran.com

In business for more than three years, the company develops specialized Web-services-ready middleware that enables a plug-and-play experience for networked applications. Investors include EnerTech Capital, TL Ventures and Celtic House International. In August the company added Rhonda Hocker, an executive with California-based software firm BEA Systems, to its board of directors.

VALERA PHARMACEUTICALS

(Formerly known as Hydro Med Sciences)

Investment: $11.6 million

8 Clarke Drive

Cranbury08512

Ph: (609)409-9010

Fax:(609)409-1650

URL: www.hydromed.com

The financing round was led by Psilos Group Managers, a New York-based venture capital firm and new investor in the company and Sanders Morris Harris, a Houston-based investment banking and investment management firm which led Valera's prior funding rounds. Other existing investors participating in the Series C financing included Wheatley Partners and NJTC Venture Fund.

Valent plans to use proceeds from the financing to support the launch of its first product, Vantas, approved by the U.S. Food and Drug Administration last month. Vantas is an implanted product used to treat advanced prostate cancer.

VONAGE HOLDINGS

Investment: $105 million

2147 Route 27

Edison 08817

Ph: (732) 528-2600

Fax:(732)287-9119

URL: www.vonage.com

Vonage provides Internet-based telephone service through high-speed Internet connections. The service is available in New Jersey and across the country. Meritech Capital Partners and 3i led the financing round. J. Sanford (Sandy) Miller, managing director of 3i, is on the Vonage board. Proceeds will accelerate the expansion of service in the U.S. and abroad and support the development of new offerings. In July the firm won a federal regulatory legal battle that prevents it from being considered as a phone company.