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Local firms gaining venture funds

By Tony Kindelspire
The Daily Times-Call

LONGMONT — Investment funds from venture capitalists began to flow more freely in the latter part of 2003, and if a couple of Longmont companies are any indication, 2004 is off to a pretty good start.

In February, Cornice Inc., a maker of compact, high-capacity storage devices, announced it had secured $51 million in a second round of venture financing, one of the largest single amounts of venture capital funding raised in the entire country to date this year.

On March 1, InPhase Technologies, a holographic data storage company, announced it had raised $8.7 million, completing a second, $15 million round of funding.

The local trend is reflective of a “loosening up” of VC money that began last year.

Nationally, the fourth quarter of 2003 was the best for venture capital financing in 11/2 years. A total of $4.9 billion was invested in the quarter — $108.4 million of that in Colorado. That compares with $74 million in-state for the third quarter of 2002, which was Colorado’s low point of the past several years.

In a headier time — the second quarter of 2000 — Colorado companies raked in $1.208 billion in VC funding, according to Pricewaterhouse Coopers.

Cornice vice president and chief financial officer Jeff Elberson said his company’s recent fund-raising round went relatively quickly.

“When we started out in October, we hit the road pretty hard,” Elberson said, adding that the goal had been to secure the funding before the end of the year. “We would have (done that), except for people going on vacation.”

The recent $51 million comes as the company has continued to acquire new customers for its 1.5-gigabyte capacity storage device, which is about the size of a matchbook. Recently, it introduced a 2-gig-capacity device.

Cornice’s previous round of $22 million in VC funding was secured in August 2002.

“At the end of ’01 into ’02, what we were faced with was people saying, ‘Oh, we can’t believe you’re going to the VC market — you guys are going to get creamed!’” said Elberson.

That, of course, didn’t happen.

Despite the difficulty of the market, Cornice found very receptive audiences at CIBC Capital Partners, Nokia Venture Partners and Vantage Point Venture Partners.

“They were very excited,” recalled Elberson. “They were saying, ‘We haven’t seen a company like this in two years.’”

Copan Systems raised its initial round of $14 million of VC investment during the first quarter of 2003, shortly after the company had relocated to Longmont from Austin, Texas, where it grew out of an incubator there.

Copan’s co-founder, chief operations officer and vice president of marketing, Eric Sumpter, said that was a tough time to be a young company trying to raise money.

“It was a very difficult climate to raise money in in that time frame,” said Sumpter, whose company is expected to launch its storage product in the second quarter.

At the time of its financing, Copan was still a very young company, operating in “stealth mode.” Now that the word is out, Sumpter has been pleasantly surprised at the interest his company has been attracting.

“We announced the company on Jan. 26, and since then we have received several unsolicited inquiries — more than 20,” Sumpter said.

At the moment, however, he said Copan is not focusing on raising money, but rather, its “march to market.”

Bradley Feld, managing director of Mobius Venture Capital’s technology funds, said his company — which is based in California, although he lives and works in Boulder — funded three Colorado companies last year, all in the $3 million to $4 million range.

“We saw a pretty steady pickup (nationally), probably starting right after the summertime (2003),” said Feld. He said that even during the lean years, the capital was always there to invest, it’s just that VC companies kept their checkbooks close to the vest after the implosion of high-tech and telecom companies.

“Venture firms raised a lot of money, there were a lot of investments made, and then the world blew up,” Feld said. “People spent all their time looking for what to do with their existing portfolios.

“If you wind the clock back to ’94, ’95, that was the beginning of the Internet, and you saw a steady curve going upward,” said Feld. “And then in the late ’90s, 2000, 2001, things really spiked up.

“Then it fell off a cliff.”

Now, Feld said, VC investing has returned to where it was in the mid-1990s. And he doesn’t buy into what some people are saying — that this is an unusually difficult time for early stage companies to find funding.

“I think that’s the way it’s always been,” said Feld. “New entrepreneurs have it much tougher. Experienced entrepreneurs can get funding pre-product, pre-revenue.”

There will always be a market for good ideas. But Feld said the days of any old idea attracting investors are gone, and, he says, good riddance.

“This (climate) is a lot better at a whole lot of levels,” he said. “When it was crazy it was kind of fun, so there was a crazy good side, but the crazy bad side was dismal. I think this is more sustainable.”

Tony Kindelspire can be reached at 303-776-2244, Ext. 291, or by e-mail at tkindelspire@times-call.com.