More startups in Md. attract venture cash

Software, life sciences firms get bulk of doubled funding

April 25, 2006|By TRICIA BISHOP | TRICIA BISHOP,SUN REPORTER

It's called "bootstrapping," as in pulling yourself up by the proverbial bootstraps, and Mark Wesker is a pro at it - enough to know that he doesn't want to do it again.

In the early 1990s, he and a partner had to use creative self-help methods to build Sequoia Software Corp., a fledgling business founded in the basement of a Columbia townhouse. They maxed their credit cards, used their homes as collateral and bought computer equipment only to return it days later after impressing potential clients, who often turned out to hold more power than the company's founders when determining Sequoia's direction.

By the mid-1990s, Wesker decided that the technology company needed professional investors who would be somewhat less hands-on. He turned to venture capitalists, which meant splitting up ownership of Sequoia, but it also meant millions of dollars in investment. The cash helped Sequoia reach a stage where Wesker could take it public and later sell it for $185 million in 2001.

Wesker, who is also chairman of the Greater Baltimore Technology Council, said the recent quality of entrepreneurs is startlingly good and that the balance of power between investors and startups has shifted since the days after he sold Sequoia and the dot-com bust, which made investors leery of technology businesses.

"I'm hearing great ideas out there today. I am just amazed," Wesker said in an interview. "I think, before, it was companies begging to get funded. And now you have investors starting to compete a little bit to try to get the best [entrepreneur]."

During the first three months of this year, 24 Maryland companies raked in $95.7 million in venture capital investments, according to data being released today in the MoneyTree Report, which chronicles venture capital spending in the United States. The survey is a joint project by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Venture Economics.

The dollar amount for the year's first quarter, which ended March 31, more than doubled from the $47.1 million invested in Maryland businesses during the first quarter of 2005, and deals were up 50 percent from the 16 made last year.

"There is quite a bit of money out there. A lot of the [venture capitalists] have started new funds, and they're all looking to put it to work," said William S. Corey Jr., managing partner of PricewaterhouseCoopers' Baltimore office.

Over the past couple of years, venture capital firms, which invest in private businesses, have raised $40 billion that they are looking to distribute.

In the first part of this year nationwide, 761 deals worth about $5.6 billion were made, a 12 percent increase compared with the 2005 quarter.

In Maryland, among the top 10 investments was more than $1 million given to Wesker's latest startup, Artifact Software Inc., which offers tools to manage outsourced software projects over the Internet.

"We use that money very clearly just to fund growth," Wesker said. "For most product companies and certainly in the technology business, you have to spend time and money to create products before you can actually start selling them. ... Venture financing is extremely helpful."

Software companies made up the bulk of Maryland investment deals during the quarter, with 10 such companies earning venture funding. In second place was the life sciences sector, with nine companies receiving funds.

The remainder of the deals was spread among five industries, including telecommunications. Bethesda's Kajeet Inc. took in $27 million to prepare for the coming launch of its pay-as-you-go cell phone designed for kids.

For the most part, venture activity was more of the same. For the past 16 quarters, total venture investment has ranged from $4 billion to $6 billion, a far cry from the dot-com boom. In the first quarter of 2000, there was $28.1 billion in activity.

Some said yesterday that they see signs of renewed interest in dot-com style companies, whose businesses are based on the Internet.

"There are glimmers of activity that really remind me of the early days of what's now known as the Internet bubble," Bob Williams, a general partner with the Bay Partners venture capital firm in California's Silicon Valley, said during a conference call yesterday.

"I would not yet call it `irrational exuberance,' but a lot of budding enthusiasm."

Web sites popular with teens and people in their 20s - such as MySpace.com, facebook.com and friendster.com - are of particular interest to investors, Williams said, even though they haven't made much money, if any.

The thinking is that such sites will draw advertising dollars that have left traditional media, such as newspapers and television.

"I think we're still waiting for that to emerge," Williams said.

tricia.bishop@baltsun.com

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