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To: Lizzie Tudor who wrote (14339)	10/16/2002 11:42:58 AM
From: stockman_scott	Respond to of 57684

Venture funds' slide continues Average returns post 27% loss in 2d quarter; slow economy cited By Beth Healy Boston Globe Staff 10/15/2002 Venture capital returns sank deeper into the red ink in the second quarter amid a plunging stock market and a slow economy that's threatening the survival of many young, high-tech companies. For the 12 months ended June 30, the average fund had posted a 27 percent loss, according to a report released yesterday by Venture Economics and the National Venture Capital Association. The decline compares with a three-year annualized return of 26.5 percent and a five-year average per-year gain of 30.6 percent. Early-stage venture funds, which produced some of the most intoxicating profits in the late 1990s, are faring worst this year. Such funds saw an average loss of 35.3 percent for the year ended June 30, while later-stage venture funds showed a 12-month loss of 20.5 percent. The grim numbers are dragging down the investment performance this year of endowments, foundations, and pension funds that invest in venture capital. They also reflect the inhospitable stock market, analysts said, as venture capitalists have hardly been able to take companies public for more than a year. It's through public stock offerings that VCs typically exit their investments and deliver gains to their investors. In addition, the lackluster economy has made it difficult for companies to sell products, grow, and gain value. Mark Heesen, president of the National Venture Capital Association, a trade group that represents the industry, said that without a healthy market for IPOs or acquisitions, it's virtually impossible for venture firms to show gains in their portfolios. ''We don't expect to see private equity returns improve substantially until the economy begins to recover and exit options emerge,'' said Heesen. Buyout funds, which tend to invest in later-stage companies and produce more modest returns even in good times, fell 11.4 percent in the year ended June 30. Over five years, their average annual gain is a meager 3.4 percent. The poor return numbers come as the venture industry is fighting a growing battle to keep firm-specific returns secret. The University of Texas recently was forced by that state's attorney general to make public venture returns that ordinarily are private. Some venture firms are threatening legal action to ensure that venture returns in the Massachusetts state pension fund are not revealed. The industry has argued that venture returns are too complicated for most people to understand. But it's clear there is extra sensitivity this year, given the embarrassingly bad results some firms are experiencing in this third year of a vicious bear market. Venture capitalists say that losses in the first year of a fund launched in 2001, for example, are misleading. Funds are typically 10-year vehicles, meaning portfolios that are underwater today could well turn profitable over the next several years, as markets improve and companies can once again be sold or taken public at large gains. Proponents of greater disclosure by venture firms argue that firms should find a way to post the returns of mature funds, so that investors - as well as others with an interest in pensions or endowment funds that invest in venture capital - can accurately compare performance. Even the venture economics numbers, which don't reveal the performance of specific firms, are considered suspect by many industry analysts, because firms submit their returns voluntarily and the results may not reflect the entire sector. Beth Healy can be reached at bhealy@globe.com. This story ran on page D1 of the Boston Globe on 10/15/2002. © Copyright 2002 Globe Newspaper Company. boston.com

To: Lizzie Tudor who wrote (14339)	10/16/2002 11:55:34 AM
From: stockman_scott	Read Replies (1) \| Respond to of 57684

Wireless Start-Up On Investor Radar BY SARAH Z. SLEEPER Investor's Business Daily Wednesday October 16, 10:40 am ET The downturn halted the creative juices and cash flow of many a would-be start-up. Ember Corp. is an exception. Its founders are two former researchers with the Massachusetts Institute of Technology who patented a wireless technology that has caught the attention of investors. The company has attracted $8 million in funding and a board that includes 3Com Corp. founder Bob Metcalfe. Ember makes a wireless version of embedded controllers and monitors - chips and related software and hardware that together create electronic systems used in millions of products. Ember's hook, say analysts, is that because the gear is wireless, it makes monitoring and controlling huge industrial systems much cheaper. Ember first is targeting companies that make military applications or build automation systems or industrial controls. Ember's technology can be added to those products to help them do such tasks as maintain steady temperature in oil pipes and airflow inside buildings. Some $18 billion in embedded controllers will be sold this year, says Ember Chief Executive Jeffrey Grammer. Ember has a good chance of getting a piece of that market, says Galen Schreck, an analyst with market tracker Forrester Research Inc. A wireless system can be "way cheaper" than a wired one, he said. Wiring can be the most expensive element of a standard industrial control system. Thus, a wireless system can cut costs by half, Schreck says. If Ember can assure companies that its system is reliable, then it can make sales, he says. "The catch is they must convince customers who are used to predictable, hard-wired networks," he said. A faulty controller - one that doesn't stop an oil pipe from freezing up or a storage container of chemicals from overheating - can cost a company millions of dollars. Ember started selling its system last month and has a growing list of customers, says Olivia Hecht, director of product marketing and management. She declined to name any buyers. Targets Harsh Climates "We've seen quite a bit of interest from companies (that work in) harsh, industrial environments," said CEO Grammer. That's because EmberNet, as the system is called, can be set up in such locations with greater ease than wired systems, he says. Here's how EmberNet works: Tiny wireless microprocessors sit on sensors placed close together on an oil pipe, for instance. Groups of the sensors create self-monitoring "nodes" that fix problems. Signals fly back and forth between them to automatically adjust temperature that gets out of whack. No humans are needed. Data about such "self-healing" adjustments are relayed to a corporate computer to keep the company apprised. Because a person doesn't have to physically go out and do a repair and because no costly wiring is required, maintenance and installation costs are low and fixes are fast, says Grammer. Ember's start comes right out of a high-tech handbook. Founders Robert Poor and Andy Wheeler invented an algorithm during five years of research at MIT. It became the basis for the company. The algorithm is what lets the microprocessors "talk" with one another and, thus, make the fixes. Poor and Wheeler at first used their algorithm in MIT's Media Lab during work on a "smart home." In smart homes a refrigerator can send an order for milk automatically to a computer and then to a store. Smart homes are evolving slowly, but Poor and Wheeler say they knew they were on to something when corporate visitors to the lab expressed interest. DARPA Provided Funds Over time, their work on how to make home equipment talk to each other morphed into a way to make industrial equipment communicate and monitor itself. The Defense Department's Defense Advanced Research Projects Agency funded the two after seeing that their algorithm could be used in military applications. EmberNet could be used to monitor vibration and sound in battlefields, says Wheeler. That could give the military crucial intelligence about troop and tank movements. Wheeler says the "eureka" moment came when he and Poor realized a standard wireless network set-up wouldn't work for many large applications. Usually, networks have a central point to route data back and forth. But EmberNet's network is "peer-to-peer," said Wheeler. "Instead of going through a base station, your messages get relayed by your neighbors." The fact that EmberNet is wireless and self-healing gives it an "oh-wow factor," said analyst Schreck. That oh-wow is how Poor and Wheeler could attract the funds to start their company last year in the teeth of the recession. Grammer joined in July. Now, Ember has money in the bank from Metcalfe's Polaris Venture Partners and other investors. Each EmberNet node will sell initially for about $300, says Hecht. Prices will fall as sales pick up, she says. biz.yahoo.com