Venture Capital News
Software Services Companies Get Hotter Among VCs
In the past year, venture capitalists had flings with one hot investment idea after another. Now, another promising opportunity could be getting a lot more love in coming months -- software as a service, where customers use software over the Internet.
Software-as-a-service companies have already been attracting attention. Venture funds in the United States poured $460 million into them last year.
Traditional software companies, where customers buy expensive programs they install and run in-house, received just as big a welcome, but this may end.
This new attitude has evolved slowly but is gaining momentum in the past six months. It is offering an abrupt statement to the software industry as a whole: The shift to a new model where revenue comes more like monthly rent payments, rather than big upfront checks, is taking hold.
Companies such as Salesforce.com Inc. helped pioneer this marketplace over the past six years. Venture capitalists are now on the leading edge of making it permanent.
In 2005, the $460 million that venture capitalists put into software-as-a-service companies was about 10 percent of software investments, said Brian Klemenhagen, a senior principal at TripleTree LLC, a Minneapolis investment bank. Investments should rise to almost $1 billion in 2007, he predicted.
The shift has big implications for established software vendors such as Oracle Corp. and SAP AG. Both companies are eager to serve the fast-growing small business market. But while their large Fortune 1000 customers are unlikely to quickly move their core software applications to a service model, small businesses will jump at the greater simplicity a services approach offers.
The implications may be equally significant for VCs who go against the grain.
They had better catch on quickly. In 2005, between 45 percent and 50 percent of software companies receiving venture money for the first time were services companies, said Drew Clark, director of strategy at International Business Machines Corp.'s venture capital group.
Clark referred to the impetus as Web 2.0, the emergence of the Internet as a more reliable foundation for finding and receiving information.
The signs of the shifting business model are most evident in the youngest start-ups. In the past six months, 80 percent of the companies making pitches for Emergence Capital Partners financing were services companies developing software or consumer Web initiatives, said Gordon Ritter, general partner at Emergence Capital, which specializes in funding services-based companies. The sheer volume of companies is rising 10 percent a month, he said.
Fueling the new interest among venture investors is the belief software services companies can be run with lower costs and higher profits. Selling costs go down because their smaller sales are easier to close. They don't need to send engineers to customer sites to make sure recently installed products run smoothly.
However, more money can be required upfront to get them going. That means a big payback can take longer.
A more traditional software company might require between US$2 million and $4 million to get going, frequently supplementing the money with a big check from a first customer or two.
In contrast, Jadallah, along with Benchmark Capital, put $8.8 million in InnerWorkings of Pleasanton, Calif., last April. The company's services product helps software developers write programs.
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IT Deals Fuel Rise in Irish VC Investment
The latest Ernst & Young/Dow Jones VentureOne Quarterly European Venture Capital Report showed that overall investment for the last quarter rose to EUR30.58 million -- EUR8.64 million more than in the previous quarter.
Investment in IT accounted for all of the deals done during the quarter, of which there were four. The EUR30.58 million invested in IT represents a sizeable increase over the EUR11 million invested in the fourth quarter of 2004. However, the total volume of deals decreased significantly from last year, down to four in the most recent quarter from nine in the last quarter of 2004.
Garry O'Rourke, senior manager at Ernst & Young Ireland, said that the figures for the last quarter of 2005 are significantly reliant on a small number of large deals.
Investment in Ireland during 2005's fourth quarter was dominated by two large deals: the EUR14 million first-round funding raised for Irish TV station Channel 6, and a EUR10 million round for Silicon & Software Systems (S3), which designs integrated circuits and embedded software solutions.
In contrast with the IT sector, the healthcare industry was left looking decidedly less robust than in the year's first three quarters, with no investment at all in the last quarter of 2005.
For the year as a whole, Ireland's venture capital investment was up 13 percent -- in sharp contrast to the rest of Europe, which experienced a 5 percent drop in investment to EUR3.6 billion and a 16 percent fall in the number of financing rounds to 1,020.
Ireland 's venture capital investment total for the whole of last year was EUR124.35 million, compared to EUR109.72 million in 2004. The fourth-quarter figure of EUR30.58 million is significantly higher than the amount invested during the previous year's final quarter, when venture capitalists ploughed EUR20.17 million into the country.
In line with the rest of Europe, Ireland experienced a decline in the number of first and seed round financings in 2005's final quarter -- down to only one deal compared with two in the same period in 2004. Across Europe, the number of deals dropped to a total of 80 first and seed round financings, in comparison with 102 in the same period in 2004.
In Europe, the UK remains the most active country for investment, although deals were down 9 percent and capital was down 11 percent to EUR1.04 billion. Ireland ranked 12th for the number of deals, equal with Spain and behind the Netherlands and Norway. Going by the amount raised, Ireland was in tenth place in the rankings.
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Yale Early Stage Ovarian Cancer Detection Technology Licensed by LabCorp
Representatives of Yale University Office of Cooperative Research announced that it has granted an exclusive license agreement with Laboratory Corporation of America Holdings (LabCorp) for the commercialization of the university's blood testing technology for epithelial ovarian cancer (EOC).
In the United States, EOC is the fourth most common cancer in women, and the leading cause of gynecologic cancer death. EOC affects approximately 25,000 women each year, and more than 16,000 will die from the disease.
The Yale technology for EOC is based on a collection of known serum proteins associated with cancer biology. Each protein marker is analyzed using a routine ELISA assay, and the results evaluated using a score system.
Research, led by Gil Mor, MD, associate professor of obstetrics, gynecology and reproductive sciences at Yale, was published on the technology in 2005. Statistical analyses on preliminary sample sets of a population of 206 women, including 24 patients with early stage (I/II) EOC and 76 with later stage (III/IV) EOC, showed a higher sensitivity and specificity than currently available tests, as well as a positive predictive value. Yale expects to conduct additional clinical studies on the test technology prior to its commercial introduction by LabCorp.
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Space Adventures Announces $265 Million Global Spaceport Development Project
Representatives of Space Adventures, Ltd., a leading space experiences company, announced its plans to develop a commercial spaceport in Ras Al-Khaimah (the UAE), with plans to expand globally. Other potential spaceport locations include Asia, specifically Singapore, and North America. The total estimated cost of the global spaceport development project is at least US$265 million and will be funded by various parties, along with shared investments by Space Adventures and the government of Ras Al-Khaimah. The company, which organized orbital flights for all of the world's private space explorers, also announces that His Highness Sheikh Saud Bin Saqr Al Qasimi of Ras Al-Khaimah, along with the UAE Department of Civilian Aviation, have granted clearance to operate suborbital spaceflights in their air space.
The UAE spaceport, planned to be located less than an hour drive from Dubai, already has commitments for US$30 million.
The suborbital space transportation system has been designed by Myasishchev Design Bureau, a leading Russian aerospace organization which has developed a wide-array of high performance aircraft and space systems. Explorer, as it has been named, will have the capacity to transport up to five people to space and is designed to optimize the customer experience of space travel, while maintaining the highest degree of safety.
The system consists of a flight-operational carrier aircraft, the M-55X, and a rocket spacecraft. The vehicle is designed to optimize the customer experience of space travel.
Space Adventures, the only company to have successfully launched private explorers to space, is headquartered in Arlington, Va. with offices in Cape Canaveral, Fla., Moscow and Tokyo. It offers a variety of programs such as the availability today for orbital spaceflight missions to the International Space Station, commercial missions around the moon, Zero-Gravity and MiG flights, cosmonaut training, spaceflight qualification programs and reservations on future suborbital spacecrafts. The company's advisory board comprises Apollo 11 moonwalker Buzz Aldrin, shuttle astronauts Kathy Thornton, Robert (Hoot) Gibson, Charles Walker, Norm Thagard, Sam Durrance, Byron Lichtenberg, Pierre Thuot and Skylab astronaut Owen Garriott.
Ras Al-Khaimah is the most northern of the seven emirates that form the United Arab Emirates, which also includes Abu Dhabi, Dubai, Sharjah, Ajman, Umm Al Quwain, and Fujairah. It borders Oman on its Northern and Eastern limits. It covers 1,684 sq. km, has 64 km of pristine natural coastline, and beautiful mountains on the northern boarder. Ras Al-Khaimah has witnessed massive development in recent years and now boasts one of the largest pharmaceutical firms in the region, a world-leading ceramics industry, and a burgeoning tourist sector with world-class hotels and resorts. Ras Al-Khaimah has embarked on an ambitious development program including investments in infrastructure improvement, tourism, shopping, and efforts to attract industrial and commercial enterprises. Among the most important of these endeavors is the establishment of the Ras Al-Khaimah Free Trade Zone. The Ras Al-Khaimah International Airport is rapidly expanding, and offers excellent services and facilities for all types of flight operations.
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Third Screen Media Secures $5 Million in Series B Funding
L Third Screen Media, the leading provider of mobile advertising and marketing software and services, today announced it has successfully closed a $5 million Series B round of venture capital. The funding will support sales and marketing efforts to bring the company’s market enabling MADX mobile ad delivery platform to publishers, carriers, brands and advertising agencies in the growing mobile advertising market.
The round was led by TD Capital Ventures, with additional funding by Blue Chip Venture Company.
Third Screen Media (TSM) enables advertising on mobile phones and wireless devices. By linking advertisers, publishers, and mobile phone carriers together on a common platform, the company’s MADX product suite increases the efficiency and time-to-market for the buying and selling of mobile advertising. MADX goes beyond ad delivery by providing in-depth analytical tools and publisher inventory management, yielding the highest possible ROI. Third Screen Media also operates the TSM|Network, the largest single source of mobile advertising inventory. Customers and partners such as USA TODAY, MasterCard, Dunkin Donuts, MSN, Sprint and the world’s largest advertising agencies rely on Third Screen Media’s products and services to manage advertising campaigns uniquely optimized for mobile devices.
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Former President of Guidant Vascular Intervention Joins Aesthera Board
Representatives of Aesthera Corp., a leader in developing innovative photopneumatic-based aesthetic treatment systems, announced it has secured US$11 million in its third round of venture funding. The investment was led by the preeminent venture capital firm Kleiner Perkins Caufield & Byers (KPCB), with participation from existing investors MedVenture Associates and Adams Street Partners.
The oversubscribed venture capital round further validates Aesthera’s growth potential in offering the only clinically proven no-pain treatment for permanent hair reduction and skin rejuvenation. The additional investment will be used to continue driving the company’s research and development of innovative applications for its proprietary Photopneumatic Technology (PPx), and to further expand Aesthera’s global sales channels and marketing efforts.
Since its founding in 1972, KPCB has backed entrepreneurs in over 450 ventures, including AOL, Amazon.com, Compaq Computer, Electronic Arts, Genentech, Genomic Health, Google, Invisalign, Netscape and Sun Microsystems.
At the American Academy of Dermatology annual meeting in San Francisco in early March, Aesthera will introduce its PPx system that combines pneumatic energy with a broadband light source. The proprietary technology more effectively positions the target tissue, painlessly treats the skin and hair, and deeply cleans the skin’s pores for increased patient satisfaction.
Vic Narurkar, M.D., principal clinical investigator of PPx and member of Aesthera’s Medical Advisory Board, expressed enthusiasm for the new round of venture funding.
