Investments in start-ups on the rise- Venture Capital Deals Showing Signs of Life

A growing number of Silicon Valley companies are announcing new venture capital investments, signaling what could be the first significant increase in start-up activity in three years.

By Matt Marshall
Mercury News

Investments range from anti-spam start-ups to wireless companies, and the pace of deals has been pronounced in the past two weeks. Whether it’s a notable upturn won’t be known until the end of this month, when research groups release second-quarter numbers.

“Anecdotally, we have been hearing about more activity,” said Amity Wall, manager of research operations for VentureOne, a venture research group. “We have seen a pickup in announcements in the last week.”

Venture capital investments have fallen steadily over the last three years, and many experts are hoping the second quarter will be the first to show a turnaround.

Many companies announcing funding this month actually closed their deals in the second quarter.

Recent deals include the following:

• San Jose’s Airespace, a wireless LAN company, plans to announce today that it received $22 million in a third round of funding, led by Fidelity Ventures, the venture capital arm of Fidelity Investments.

The company says it has found a new way to help big corporations manage their wireless access points with a single systemwide application, saving hassle and costs. While it has competitors, Airespace contends it is a market leader, shipping to 30 customers including HP Pavilion, Duke University Medical Center and University of California-Berkeley — in some cases stealing customers from incumbents like Cisco Systems. Investors gave it a substantially higher valuation than previously, the company said.

• Ironport, a San Bruno start-up that has built a new e-mail gateway appliance, and allied with spam fighter Brightmail to sell a single box to corporations, plans to announce today that it received $15 million in a second round of funding from Menlo Ventures, Allegis Capital and Amicus Capital. The company has signed up customers like Cisco, Major League Baseball, CBS Marketwatch and Nasdaq. Investors doubled the company’s valuation during the financing. Ironport’s Tom Gillis, vice president of marketing, says the company handles every outbound e-mail for Cisco, “from John Chambers on down to the dude in the mailroom.”

• San Francisco’s Cloudmark, the anti-spam start-up that seeks to use the same peer-to-peer networking technology behind Napster, the controversial music-sharing service, said Friday that it has scored $4.5 million from Ignition Partners. The idea, which came from Napster co-founder Jordan Ritter, is to recruit millions of users who will report incoming spam e-mail to Cloudmark, so that Cloudmark can combat the offending messages for everyone.

• Proofpoint, a Cupertino anti-spam company founded just a year ago, plans to announce today that it received $7 million. Mohr, Davidow Ventures, Benchmark Capital and Stanford University are the investors. Eric Hahn, former chief technology officer of Netscape, founded the start-up while brainstorming with large companies about spam. In addition to combating spam and viruses, Proofpoint says it incorporates software that helps avoid confidential-material disclosures and ensures compliance with recent legislation like Sarbanes-Oxley.

• San Jose’s BlueArc, a provider of network storage systems, said it received $47 million in a fourth round of funding. Investors lowered the value of BlueArc, an indication that the network-storage sector is feeling the pinch after a bubbly period through last year.

• San Jose’s Silicon Optix, a provider of digital imaging chips, said it raised $13 million recently in a second round.

• South San Francisco’s Tercica, a drug developer focused on human growth and metabolism, said it raised $44 million.

Steven Kishi, a venture capitalist at Hummer Winblad, said he’s been looking actively at deals, and has noticed competition is heating up again among venture capitalists looking for the most promising start-ups. Eighty percent of young companies are still struggling to find funding, he said, but there’s a growing frenzy over the remaining 20 percent.

“It’s kind of like the San Francisco housing market,” he said. “You know which ones are going to go.”

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