Venture capitalists go out on a few odd limbs

Venture capitalists have been treading carefully since their dot-com misadventures, but still occasionally wander off the beaten path in search of runaway successes.

The Associated Press

The quest sometimes turns quirky concepts into wannabe businesses. The past year was no different, even as venture capital investments fell to their lowest level since 1997.

There is, for example, the Massachusetts startup that got $47.5 million to fund its work developing a treatment for insomnia and jet lag. Or the Internet coordinator of political campaigns who got $300,000 of venture capitalist backing.

The two ventures were among 47 unearthed when PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association pored through industry statistics to identify 2003’s oddest startups.

Other anomalies include a startup that makes energy efficient traffic lights with hidden security cameras; an Internet service that touches up digital photos; and a startup making hybrid baseball bats with wooden barrels and aluminum handles.

Even the bat maker’s chief executive, Jack Cipoletti, thought the concept was wacky when Mountaineer Capital approached him to oversee the firm’s $300,000 investment in West Virginia Bats LLC. But now he believes the company in Eleanor, W.Va., is about to uncork a new market.

The five-employee startup has already sold about 6,000 models of the "Original Metal Wood" bat, mostly to youth leagues. The bat, which wholesales for about $100, is supposed to last as long as 10 plain wooden bats, which sell for about $30.

West Virginia Bats hopes to start making money by late next year and has hopes of some day persuading Major League Baseball to let its players use its equipment during batting practice.

Still, Cipoletti realizes failure is a distinct possibility.

"Let’s face it, a venture capital startup is a roll of the dice," he said.

Overall, the 47 odd ventures received a combined $492 million in venture capital during 2003, the research led by PricewaterhouseCoopers found. That’s about 3 percent of the estimated $17 billion in VC money invested this past year. Most of it flowed into familiar high-tech strongholds from hardware to biotech.

In venture capital investing, a herd mentality can sometimes cause trouble by creating too many startups chasing after the same customers. And that’s one allure of the odd venture.

Julie Wainwright suffered through a glut at the height of the dot-com boom while she ran Pets.com, which became famous for its sock puppet mascot. But high brand recognition wasn’t enough to help Pets.com rise above eight other online pet stores, contributing to the company’s high-profile collapse three years ago.

Today, Wainwright is happy to be chief executive officer of Bellamax Inc., a San Francisco-based startup without any notable competition. The company touches up digital photography for businesses and consumers. The online service, which Bellamax also sells through other photo Web sites, will remove red eye from a digital snapshot for 49 cents per photo, rearrange the scenery for $2.99 or even change people’s skin tones for $7.99.

With sales of digital cameras rising steadily, Bellamax was able to raise $6.3 million from several venture capitalists and persuade Wainwright to take another stab at running an Internet business.

"The dot-com time was crazy, but this company is founded on sound business fundamentals," she said. "There is a real need for what we are do. We think of ourselves as Adobe Photoshop on steroids."

Adobe Systems Inc., which makes the popular Photoshop software program, is among Bellamax’s financial backers.

The potential to revolutionize a prosaic piece of machinery — the traffic signal — helped OptiSoft Inc. raise $10 million during 2003 and recruit former Compaq Computer Corp. board member Ted Enloe as its chief executive.

The Richardson, Texas-based startup says its energy-efficient traffic signals will save cities and counties thousands of dollars on their power bills during the next 30 years while offering a possible tool to fight street crime and terrorism.

OptiSoft’s signals can accommodate hidden security cameras and even sensors that might detect vehicles carrying biological and nuclear weapons. The traffic signals also have battery back-up systems that will keep them operating for up to 72 hours during a blackout.

"Traffic signals really haven’t changed much since 1898," Enloe said. "We think it’s time to bring them into the 21st century."

It’s always difficult to separate startups destined for success from those headed for futility, said Mitchell Kertzman, a former high-tech CEO and now a partner at Hummer Winblad, a San Francisco venture capital firm.

Like Google, for example.

Few venture capitalists were initially willing to take a chance on startups developing online search engines, reasoning there was no way to make much money from the free service. In the past year, though, advertisers paid an estimated $2 billion to have their links displayed alongside relevant search results, helping to turn industry leader Google into a prized investment.

"Just because something doesn’t appear to have a viable business model today doesn’t mean it will always be that way," Kertzman said.

Odd ventures

Some unusual startups funded by 2003 venture capital, and their funding:

Atomic Dog Publishing — $2.47 million, online college textbook publisher

Capella Education — $7.5 million, online university

Currenex — $3.6 million, online currency exchange

DriveSafety — $1.5 million, driving education simulator

ForHealth Technologies — $7.4 million, robotic drug dispensing

JobFlash — $1 million, automated employee screening, recruiting

Maptuit — $2 million, address matching, mapping for truckers

New Vine Logistics — $6.95 million, consumer-direct wine shipping

Pets Choice — $5.4 million, veterinarian clinics and hospitals

PhatNoise — $9.1 million, searchable digital music lists for homes, cars

PhotoSecure — $450,000, photonic dye for counterfeit protection

The Tennis Channel — $25.4 million, 24-hour coverage of racket sports

Sources: PricewaterhouseCoopers, Thomson Venture Economics and National Venture Capital Association