Apr. 29–The latest paltry tally of investor dollars dribbling into Utah’s technology sector only underscores the need for a new state-backed $100 million venture capital fund, industry officialssay.
For the first quarter of this year, Utah companies managed only six deals worth a total of $33 million — down sharply from 2002’s first-quarter venture capital total of $53 million, when eight transactions were implemented, according to the MoneyTree Survey compiled by PricewaterhouseCoopers, Thomas Venture Economics and the National Venture Capital Association.
“It shows what anyone in a high-tech market knows, that good ideas are not enough,” said Dave Wagner, spokesman for the Utah Information Technology Association. “There is a huge need to feed the seedlings out there, otherwise they never grow to full maturity.”
With just 29 total investments for $103 million, 2002 was Utah’s worst VC showing in five years, supplanting a $117 million, 36-deal 1998. Last year’s results were a shadow of the tech boom year 2000, when state tech companies garnered $706 million on 65 transactions.
Even worse was Utah’s percentage of total deals in the United States — 0.96 percent of 623 first-quarter deals worth $623 million.
“This definitely shows the need for the venture capital fund,” Wagner said Monday.
The Venture Capital Enhancement Act, overwhelmingly passed by the recent Legislature and signed by Gov. Mike Leavitt, creates a $100 million pool funded by the private sector. The money is set aside for early stage technology companies, requiring participating venture capital companies to establish offices in Utah.
The fund incorporates a state safety net in the form of up to $20 million annually in contingency tax credits. Those credits would kick in only after the fund’s own reserves are exhausted, and only if investors’ returns fall below 5 percent to 6 percent.
Wagner said even before the fund’s organization is complete, UITA has received several calls from out-of-state VC firms interested in coming to Utah.
“This is a good start. These are people to whom we have never spoken before,” he said. “We haven’t even begun doing any recruiting.”
While the VC results for Utah overall were dismal, a few companies did well. One was Salt Lake City-based STSN, which specializes in high-speed data communications for the hospitality industry.
The 5-year-old, 175-employee company reported raising $15 million — nearly half of Utah’s VC total — during the first three months of this year. An unspecified, but “large chunk” of that came from Intel to support wireless expansion at 400 hotels throughout the United States, United Kingdom and Germany, said STSN marketing director Sandra Richards.
She credits “the strength of our company” for STSN being able to land the biggest single piece of VC funding recorded so far this year in Utah.
“A lot of our competitors have come and gone, but we have hung in there strong,” Richards said, noting primary customers such as Hilton and Marriott have been critical, along with growing customer demand for high-speed Internet in the hospitality industry.
Pharmadigm Inc., a Salt Lake City biopharmaceutical research company, reported it is in the process of raising $7.5 million in operational funds from a variety of sources; eReinsure Inc., a New York-London based company with a technology development center in Salt Lake City, raised $5 million during 2003’s first quarter.
The expansion-minded online insurance and re-insurance company got its money from Century Capital Partners III LP, an investment fund managed by Century Capital Management Inc.
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HLT, MAR,
