Aug. 10–High-tech might not be kicking, but for venture capitalists, it sure is alive.

Despite the technology industry’s three-year debacle of layoffs, failed companies and plummeting stock prices, venture capitalists still believe high-tech can pack a punch in the future, a Times analysis of data contained in the latest MoneyTree Survey indicated.

Venture capitalists steered more dollars to privately held technology companies in the Bay Area during the second quarter than they did to other industry groups, according to the survey, which was compiled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

Software was on top in the Bay Area. Privately held software companies as a group harvested $321 million, or nearly 23 percent of the funding that venture capitalists supplied during the April-June period, the MoneyTree study showed.

“High-tech is doing pretty well, considering where it’s been lately,” said Tracy Lefteroff, a global managing partner with the Silicon Valley office of PricewaterhouseCoopers. “These technology sectors will continue to be an important part of our local economy.”

The financing won by software firms was well above the 18 percent of the money pie captured by tech networking companies and the 14 percent slice gained by telecommunications companies.

“What’s happening is venture capitalists understand that the technology market is starting to turn back up, and now is when they want to make their investments,” said Rob Enderle of San Jose-based Enderle Research.

Venture companies suspect that a huge surge could soon surface in demand for a variety of high-tech products, according to Enderle.

“The venture firms want their private companies to ride the wave of new technology spending,” Enderle said. “They see the wave coming, and they want to get their companies paddling as madly as possible.”

Technology companies constitute seven of the top 10 industry categories for venture financing in the Bay Area during the second quarter.

But the life-sciences industry, which is expected to rival high-tech as a growth industry of the future, also made a strong showing.

Medical equipment and devices companies gained nearly 13 percent of the financing in the quarter. Private biotechnology firms obtained nearly 12 percent.

But the financing patterns were markedly different in the East Bay, which is not as reliant on technology companies as other parts of the Bay Area, such as Santa Clara County and San Francisco.

Biotech companies topped the East Bay list, raising 29 percent of the venture financing steered toward firms in Alameda and Contra Costa counties. Telecommunications companies accounted for 20 percent of the venture funding activity in the East Bay, a figure equaled by networking companies.

In sharp contrast to the Bay Area trends, software companies captured only 3 percent of the financing in the East Bay, the survey showed.

A life-sciences company, BioMedicines Inc., was the financing champion in the East Bay in the second quarter, corralling $43 million.

The Emeryville-based company culls lists of drugs and compounds that have been put on the shelf by their original creator. Usually these drugs were being developed for one sort of medical treatment but fell out of favor or encountered a setback. BioMedicines then buys the compound in a quest to find a new medical use for it.

“We redirect development of these drugs,” said James Ahlers, chief financial officer with BioMedicines. “We take an asset that the originator no longer wants. The price we would pay for that compound is less than what we think it’s really worth.”

BioMedicines acquired a drug that had been intended for use in treating inflammatory bowel diseases. BioMedicines is now using the drug to reduce the toxicity of a drug used in cancer therapy.

Pleasanton-based Trapeze Networks Inc. also got plenty of financial love from venture capitalists in the second quarter. The company landed $34 million in funding, apparently because investors believe it can be a big player in creating a wireless communications future.

“The idea is to unwire the worker,” said Jim Flach, president and chief executive officer with Trapeze. “We’re doing for data and computers what cell phones did for voice communications. It’s much bigger than personal computers. It’s personal digital assistants and other devices.”

Trapeze is building wireless local area networks for use in big organizations. People could connect to each other or the Internet anytime and from anyplace, using virtually any device. The company has begun shipping products to a variety of customers.

“People want to be able to take a computer and get on the network, no matter where they are,” Flach said.

The top Bay Area company in the second quarter was Vivato Inc., a San Francisco-based firm that makes switches to improve the operation of wireless networks that operate using the Wi-Fi standard. Vivato received $44.5 million.

“There is still a lot of opportunity in the tech space,” Lefteroff said. “The last couple of years weeded out a lot of me-too companies. But there are a lot of survivors, and new companies, that are poised to succeed when spending picks up again.”

—–

To see more of the Contra Costa Times, or to subscribe to the newspaper, go to http://www.bayarea.com

(c) 2003, Contra Costa Times, Calif. Distributed by Knight Ridder/Tribune Business News.