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VC Investments Down Again Amid Continued Caution

The county’s largest venture capital firms saw local investments plunge for the second consecutive year.

The 16 largest with offices or headquarters here invested about $41 million in local companies in 2010, down 31% from 2009, according to this week’s Business Journal List.

The list ranks the companies by the dollar amount invested in Orange County for the year. Ties are ranked by funds under management. The List doesn’t include investments in local companies by venture capital firms with offices outside the county.

Last year’s list saw a 20% drop in 2009 investments as the financial crises peaked and venture capitalists held on to their money.

This year’s list shows more than half of the entries making no new investments here in 2010. The last two years have seen many venture capitalists nurse their current investments with some follow-on funding.

No. 1 Sail Capital Partners LLC in Irvine invested $24 million in local companies in 2010, down 22.6% from a year earlier.

Sail followed the pattern of follow-on financing, investing mostly in its portfolio companies to prepare them for an exit in the next two to three years, according to managing partner Walter Schindler.

Local Lineup

Sail has about $140 million under management, up about 3% from 2009.

Its investments include Ice Energy, a Windsor, Colo.-based, energy storage company that has an office in Costa Mesa; WaterHealth International, an Irvine developer and marketer of decentralized water purification systems; Lake Forest-based M2 Renewables, a wastewater and energy conservation company; and Irvine’s FlexEnergy LLC, which generates clean energy from greenhouse gases.

Several of Sail’s portfolio companies doubled revenue in 2010, but only one has turned a profit so far, according to Schindler.

It appears that another, Oryxe Energy International Inc., which produces fuel additives that reduce emissions, didn’t pan out and is no longer listed among Sail’s investments, according to its website.

Overall, the value of the firm’s $90 million Sail II fund saw a 47% increase in unrealized returns from 2009. Its $52 million inaugural Sail I fund gained 10%, according to Schindler.

The firm expects to see more than half its portfolio companies exit in the second half of this year, he said.

Schindler is one of the county’s biggest clean tech advocates and is bullish on the sector’s long-term success.

“We think OC is becoming a global epicenter of clean tech,” he said.

Sequent Investment

No. 2 Menlo Park-based Versant Venture Management LLC, which has an office in Newport Beach, invested about $4 million locally.

Versant and US Venture Partners of Menlo Park last month participated in a $15.6 million second round financing of Sequent Medical Inc., an Aliso Viejo medical device maker.

Versant has five local investments that total about $16 million in the pipeline this year.

Companies drawing investments include San Clemente-based heart device maker Cameron Health Inc., Aliso Viejo-based eye device maker WaveTec Vision Systems Inc., and Laguna Hills-based Glaukos Corp., a glaucoma device developer.

Cameron has raised nearly $200 million in financing with its recent $107 million round led by Palo Alto’s Alloy Ventures and Delphi Ventures of Menlo Park.

Miramar Venture Partners in Corona del Mar, in the third spot, boosted its local investments to $3.8 million in 2010, up 27%.

In August, the firm led a $20 million third round venture funding for Irvine-based Brand Affinity Technologies Inc., an advertising startup with technology that aims to automate celebrity endorsement deals.

“It was the largest investment we made last year,” said Miramar managing director Bruce Hallett.

Miramar tends to be the first institutional investor in deals and is eyeing developments in web-based industries, cloud computing and the medical and technology sector, according to Hallett.

Miramar has about $125 million under management and 16 portfolio companies.

Laguna Beach-based Okapi Ventures LP moved up one spot to No. 4 after investing $3.8 million in local companies. The 376% jump was by far the largest on the list.

“We made follow-on investments in local companies and we made new investments as well,” said cofounder and managing director Marc Averitt.

Local Okapi investments include Newport Beach chipmaker RF Nano Corp.; Aliso Viejo medical device maker OrthAlign Inc.; and SecondVoice Inc., a Laguna Hills telecommunications software company.

Okapi had something of a hit in 2010.

In July, Carlsbad-based Helixis Inc. was acquired for $105 million by Illumina Inc., a San Diego-based maker of gene sequencing instruments.

The sale provided a return of six times the money Okapi put in the company.

“We’re doing great,” Averitt said.


Download the 2011 OC’s LARGEST VENTURE CAPITAL FIRMS list (pdf)

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