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Investors banking on Colo. firms Venture capital up in 4th quarter

Investors put $115.6 million into 17 Colorado companies in the fourth quarter of 2002 – a huge increase over the $47.3 million raised in the previous quarter.

By Jennifer Beauprez
Denver Post Business Writer

But this year may not be much easier for entrepreneurs looking for capital.

"Expect more of the same, and go to whatever religious institution you go to on the weekends and hope that it gets better," said Brad Feld, partner of Mobius Ventures, a Superior-based venture capital firm that invests money in startups.

Despite the increase during the fourth quarter, the year’s investments totaled $547.3 million statewide, or about 60 percent less than the $1.3 billion raised in 2001, according to the MoneyTree survey, released Monday by PricewaterhouseCoopers, the National Venture Capital Association and Venture Economics.

Nationwide, 3,011 companies raised $21.1 billion, which was about half the $41.2 billion raised in 2001. Colorado ranked seventh nationwide for the quarter.

Ernst & Young and VentureOne compiled their own quarterly survey, which showed 55 Colorado companies raised $571.5 million last year.

Pharmion Corp., a Boulder firm that creates specialty pharmaceutical products, landed the largest investment – $40 million – during the fourth quarter. The company is developing two drugs to treat two forms of cancer common among the elderly.

The software sector ranked second for investments, grabbing $25 million. CreekPath Systems in Longmont led the sector with a $16 million investment. It makes software to automate and manage data flowing into corporate offices.

While many firms struggle to get the attention of investors, CreekPath talked to 39 venture investment firms in four months and had more investors than it could handle.

"We managed the process almost like a military campaign," said Dennis Grant, chief executive of CreekPath.

While one CreekPath executive shared the firm’s financials with one investor, another executive introduced prospective investors to CreekPath’s customers.

"We documented every meeting, met up every two days," Grant said. "We traveled individually, but we would hit together as a team."

Other noteworthy deals in the fourth quarter included:

$11.3 million to Vericept Corp., an Arapahoe County firm that has software to monitor workplace Internet abuse.

$11 million to Bill Barrett Corp., a Denver natural gas and oil exploration firm.

"Overall if you look at 2002, our results are similar to the pre-bubble era, where both the size and the deals are very similar," said Matt Kosmicki, partner in the Denver technology practice of PricewaterhouseCoopers.

Next year may not bring too much change in the amount of investment activity, many investors agree, unless the stock market rallies and opens the door to more initial public offerings. Such public stock sales allow venture capital firms to liquidate their investments.

Don Williams, venture capital leader with Ernst & Young, said he expects more business failures this year and fire sales of companies. He said many businesses have survived on previous financing and bridge loans.

"They’re getting to the end of their bridge, and they’re still in the middle of the river," Williams said. "There are over 10,000 companies that got funding over the last three or four years that haven’t determined their future, whether it’s an IPO, a merger or ashes."

Yet Mark Soane, managing director of Appian Venture Partners in Denver, said he wouldn’t be surprised to see more investments flowing in Colorado this year.

"Investors had an opportunity to see which companies found the business models to survive and – believe it or not – even grow," Soane said. "I think we’re going to see an increase in activity this quarter, continuing a trend that may have started in fourth quarter."

http://www.denverpost.com/Stories/0,1413,36%257E33%257E1140430%257E,00.html

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