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Local Venture Investing Surged in ’05

Investing by local venture capitalists in Orange County startups made a dramatic rebound last year.

Nineteen venture capital investors operating in OC said they invested $44.4 million in local startups last year, a 78% increase from 2004, according to this week’s Business Journal list.






“Activity seems to be continuing at a fairly high level,” said Bruce Hallett, managing partner of No. 2 Miramar Venture Partners LP in Corona del Mar. “Entrepreneurs are not discouraged by what they see as temporary bearish moves in the public markets.”

The list ranks venture firms operating in OC by their funding of local companies. The list is a snapshot of local venture investing and doesn’t include investments in local companies made by firms that don’t have offices here.

Including investments by outside firms, OC startups saw a near doubling in venture money raised last year to $572 million, according to Ernst & Young LLP and Venture One, a Dow Jones & Co. unit.

This year, venture investing could keep pace with 2005 but isn’t likely to surpass last year’s level, said Don Williams, Ernst & Young’s director of venture capital services in Southern California.

In the first quarter, funding in OC startups fell 16% from a year earlier to $92 million in seven deals, versus 11 a year earlier, according to Ernst & Young and Venture One.

“We won’t achieve $600 million for the year, but we will see increased closings of financings in the second and third quarters that exceed $400 million,” Williams said.

Five firms on this year’s list didn’t make any local investments in 2005, down from six a year earlier.

Eight of the 19 firms upped their local investing in 2005, versus 10 a year earlier. One firm invested less money in OC startups than it did a year earlier.

The Newport Beach office of Menlo Park-based Versant Ventures topped the list, investing $15.7 million in a handful of companies last year. Versant’s investments were up 685% from $2 million in 2004. That moved the firm up from No. 5 on the list a year ago.

Versant, which specializes in healthcare startups, last year funded eye device companies AcuFocus Inc. of Irvine and Eyeonics Inc. and Wavetec Vision Systems Inc., both of Aliso Viejo.


Versant’s Investments

Eyeonics raised $16.5 million in a fourth round of venture capital funding and said in January it could consider an initial public offering sometime this year. Its main product is an implantable lens used in cataract surgery.

AcuFocus is developing an implant to treat vision loss in older people, and attracted $27.5 million in funding last year.

“There certainly is a strong medical device community here,” said Charles Warden, Versant’s managing director. “We see no slowdown.”

Seven of the top 10 firms on the list did more investing than in 2004 (entries for three are Business Journal estimates for which changes couldn’t be calculated).

Rounding out the top five: Miramar at $5.8 million in 2005 funding, up 45%; No. 3 the Irvine office of Santa Monica-based Palomar Ventures Management LLC at $5.1 million, up 13%; No. 4 Costa Mesa-based InnoCal Venture Capital at $4.5 million, up 18%; and No. 5 Tustin-based Angel Strategies LLC at an estimated $4 million.

The list includes one new find, the Newport Beach office of Newton Center, Mass.-based Softbank Capital, the investment arm of Japan’s Softbank Corp. It’s No. 16 on the list, though Softbank didn’t make any local investments last year.

“We are new to the West Coast,” said Craig Cooper, partner with Softbank Capital who gained an OC reputation a few years ago as cofounder of Boost Mobile LLC, now part of Sprint Nextel Corp. “We are very actively looking for deals in Orange County.”

Miramar Venture Partners rose a spot from last year with a handful of deals. Investment companies include Irvine-based wireless chip designer Starport Systems Inc., Aliso Viejo-based Silicon Systems Inc., a maker of flash memory drives, and Irvine-based Aktino Inc., a designer of telecommunications gear.

Aktino, which raised $16 million in a second round of funding last year, counts several firms on the list as investors, including InnoCal, No. 7 Crosspoint Venture Partners in Irvine and No. 11 Huntington Ventures LLC in Irvine.

Palomar Ventures slipped two spots from No. 1 last year, even though it invested more in local companies last year, just not at the same pace as Versant and Miramar.

The firm has invested in two technology companies: Aliso Viejo-based Datallegro Inc., which makes data storage and search systems, and Irvine-based Newport Imaging Corp., a maker of chips for digital cameras.

Within the past year, Datallegro has raised $16.5 million in funding while Newport Imaging has received $4 million. Palomar took part in both fundings.

Name Change

Costa Mesa-based Odyssey Venture Partners LLC, which ranked No. 9 on last year’s list, is No. 8 this time around with a new name, Sail Venture Partners LP.

Sail Venture did $1.2 million in investing last year, up 20%. Its main investments are Irvine-based Oryxe Energy International Inc., a fuel additive company, San Juan Capistrano-based CNS Response Inc., which studies psychiatric drugs, and Newport Beach-based Earthanol Inc., which converts waste to ethanol.

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