Tech Startups Weather Storm, Seek New Funding
By ANDREW SIMONS
It’s not easy being a technology startup these days. But Orange County’s class of 2001 has come a long way,and the companies say they’re not done.
Some notable startups, which raised money during hard times last year, said they are close to landing new funding and are readying for initial public offerings.
Irvine chip designer Y Media Corp. said it is in final talks for new funding that it expects to complete in the next two weeks. 3DSP Corp., another Irvine-based chip designer, said it is looking for $25 million in the coming weeks. And Newport Beach chip designer Morpho Technologies Inc. said it plans to close $10 million in a second round of funding in the next week.
OC’s tech startups have been busy. Among their doings: a new South County clean-room production facility, more than 200 new jobs and overseas expansion.
Times still are tough, though. Many companies seeking money in the past year,especially since Sept. 11,found investors unwilling to give them full rounds. If they were, it was at unacceptable terms.
That led several companies to seek smaller bridge financing until more investors decide to open their wallets.
“It’s really the best of times and the worst of times,” said Tom Beaver, 3DSP’s chief executive. “Two years ago anyone with a reasonable vision statement could get funding. In these tough times, you need much more aired business that’s financially founded.”
Here’s a look at some of the startups:
Y Media
Company officials said they are concocting a mix of private placement financing and money from corporate investors to add to the $16 million they’ve raised so far.
“In these hard times, we’re looking at a lot of different types of funding,” said spokeswoman Jane Torre. “We should have an announcement in the coming weeks.”
Y Media declined to say how much it hopes to raise or from whom.
The 2-year-old company designs chips for digital cameras, computers and wireless phones using the same standard process used to make computer processors, memory chips and other common semiconductors. In digital cameras, Y Media is hoping to displace so-called charge-coupled devices, chips that offer high-quality images but are more costly to make.
Among the company’s investors: Taiwanese fund manager InveStar Capital Inc. and Japan’s SQ Corp., whose clients include Matsushita Electric Industrial Co., maker of Panasonic products.
TransDimension Inc.
Two months ago, Irvine chip designer TransDimension underwent a management shift, hiring Texas Instruments Inc. veteran Rick Goerner as chief executive.
Dr. Ping Liang, the company’s founder and a former University of California, Riverside, professor, now is chairman.
While the company hasn’t sought more funding since it landed $13 million a year ago, TransDimension could seek and extra $13 million in June, Goerner said, though no specific plans have been made.
“We’re evaluating what our financial situation is,” he said. “We’re going to want to go to market soon.”
TransDimension designs and sells chips that help wireless phones, handheld devices and other electronics talk to each other without having a personal computer to mediate.
Up until now, someone who wants to move data between devices has to use a PC with a universal serial bus. The port helps a computer talk to printers, modems, cameras and just about anything else. The holy grail is getting portable devices to communicate on their own. TransDimension’s chips aim to do that.
Since coming on board, Goerner said he has tried to tweak TransDimension’s product development and marketing.
“Being close to your customer and applications is important,” he said. “For the size we want to be, that will be important. I don’t think we’ll be a billion-dollar company.”
3DSP
3DSP had its share of difficulties finding money,at least on its terms.
The designer of a type of reconfigurable chip called a digital signal processor closed a $5 million bridge financing deal,down from the $10 million it was looking for and a far cry from the $30 million it initially had hoped to close.
“Most of (the venture capitalists) wanted ratchets and warrants and guarantees,” Beaver said. “You know all those VC terms. We didn’t like the terms, because it would dilute ownership among the stockholders,our employees.”
3DSP has contracted with a Bay area investment bank to help secure nearly $25 million in private placement financing, Beaver said.
The company’s kept a lid on expenses in a bid to cut its cash burn rate, Beaver said.
“I was kind of a hard ass,” Beaver said. “Like when somebody wanted to go to a sales call with two guys and I would have to say, ‘Why don’t you just send one.'”
Intel Corp. and Alcatel Ventures, the investment arm of France’s Alcatel, are 3DSP investors. In all, the company has raised $29 million.
ViaCore Inc.
Irvine’s ViaCore, which is building electronic exchanges for large companies looking to buy and sell components and supplies online, could be among the county’s next crop of public offerings.
After the company shifted gears,opting to create a private network for companies to exchange goods rather than a public one,ViaCore drew $43 million in new funding in July from Cisco Systems Inc., Dell Computer Corp., Hewlett-Packard Co. and Intel.
The company hasn’t sought any additional funding since the summer and expects its cash on hand to see it through to an offering.
“We’re going to break even within a year,” said Dan Driscoll, ViaCore’s chief operating officer.
ViaCore counts 44 customers and said it continues to close new deals. When customers sign up, they buy the gear and software for a network and then electronically swap products with other companies.
The company chose to go with a private network because several potential customers told ViaCore they didn’t like the idea of buying supplies on a network open to anyone.
They pointed out that an open network,where all a company’s suppliers come to a single location to swap parts in a public bid-and-ask setting,would reveal the sources of a company’s parts.
VSK Photonics Inc.
VSK, which has received $18 million in venture funding so far, has signaled it could seek more funding. The ultrasecretive startup didn’t return calls for this story.
It’s likely the company will need to get more financing soon. VSK has quietly built a clean-room facility in Lake Forest. The company said it now is taking orders and expects to ship samples in May.
What is known about VSK is that its optical networking products are set to use a material called indium phosphide as a conducting agent. The design is more efficient, according to the company. VSK’s investors, which include Intel’s venture arm and Morgenthaler Ventures of Menlo Park, said they like the way the company’s products slash costs for networking gear.
