Investments in U.S. venture capital firms jumped 62 percent in the first three quarters of 2005 over the same period a year ago as pension funds, endowments, and other limited partners sought to boost their returns. Over the nine-month period, VCs raised some $17.3 billion, surpassing the total for all of 2004 in just three quarters, according to numbers from the National Venture Capital Association. In the third quarter alone, 45 firms raised investment funds worth $5.39 billion, up 11.6 percent from the $4.83 billion that 54 firms raised during the year-ago quarter.
During the quarter, the average amount each firm raised rose 34 percent to $120 million from $89.4 million during the year-ago quarter. Morgenthaler is one example of a firm that has closed a new fund that is smaller than its old fund. Its last fund just closed at $450 million, whereas a fund raised in 2001 invested $850 million. “To make new investments you have to have exits,” says Gary Morgenthaler.
Web Firewall Recap
A new round of financing and a new chief executive should put NetContinuum back on track. Web-application firewalls, which are designed to prevent hackers from accessing information through a web site, have been a good idea for a long time—the problem is, there hasn’t been much in the way of demand. At least not until several high-profile data break-ins forced big companies to reconsider their Internet security measures. “The company was funded and came to market before its time,” says NetContinuum CEO Varun Nagaraj. Mr. Nagaraj moved into the top spot and garnered a $15-million recapitalization financing led by Menlo Ventures. “After a long gestation period, the application security category is poised to grow significantly,” says Menlo’s John Jarve. A long gestation period and about $69 million.
Next-Gen Surveillance
In the future, we’ll all be watched over by machines of loving grace. At least that’s the goal of startups such as Vidient, which markets a software program for analyzing digital video feeds. The company recently picked up a $12-million second round of investment led by Canaan Partners. Vidient CEO Brooks McChesney says his company’s software can monitor access doors and perimeters for intrusion. It can also evaluate vehicles by size and shape, and determine if they pose a threat. But Vidient’s big advantage may be its ability to integrate with other access systems. “We’ve seen some consolidation in the IT space,” says Canaan’s Skip Glass. “Fast-forward a couple of years, and you’ll see it in the physical security world as well.”
Tips from the Top
Tired of sending in all your hard-earned cash to the IRS? Take a bite out of the federal budget by scoring a lucrative tech grant. Startups are missing out on the chance to secure millions of dollars in revenue through sole-source contracts with the U.S. government, say experts. Check out the government’s Small Business Innovation Research grants, commonly called SBIRs. SBIRs can provide early-stage startup companies with an attractive alternative to venture capital and, usually, the opportunity to cede some management control to venture partners. “It’s an incredible gold mine of opportunity,” says Russ Farmer, president of consulting firm PBC. The program funnels more than $2.2 billion into tech companies each year.