E-commerce software, services draw VC
attention
By Chris Nerney
Network World Fusion, 08/27/98
BigBook, Inc. of San Francisco runs an online equivalent of the Yellow Pages.
CrossRoute Software of Redwood Shores, Calif., makes supply-chain
management software. Online Monitoring Services of Alexandria, Va., offers
business-to-business intellectual property protection services on the Internet.
These companies are in entirely different markets, but they have two things in
common:
They are among the more than 200 network companies that received a record
total of $1.14 billion in venture capital in the second quarter, according to the
latest PricewaterhouseCoopers/Network World Venture Capital Survey.
They are part of a huge wave of electronic commerce software and services
companies that are building the infrastructure for the Internet economy.
In particular, start-ups targeting business markets are attracting heavy backing
from venture capitalists and other investors.
"Unequivocally, the Internet action is in the business-to-business side," says
Kirk Walden, director of the quarterly survey.
CrossRoute, for example, received $8 million in third-round funding from a
half dozen venture firms. The company's flagship product is server-based
software that supports functions such as supply-chain integration, distributor
ordering, logistics coordination and inventory replenishment.
Online Monitoring Services was given $3.15 million in first-round funding
from Piper & Marbury LLP, a Baltimore business law firm. Founded in
1997, Online Monitoring Services sells a product called WebSentry, a search
engine that continuously monitors the World Wide Web for pages that misuse
a client's intellectual property.
Two of the five largest network venture deals in the second quarter involved
ISPs that cater to business customers. International service provider VIA
Internet of Denver grabbed $51.5 million in second-round funding from 10
different venture firms, and Epoch Networks of Irvine, Calif., landed $25
million in funding from HarbourVest Partners.
The $1.14 billion in second-quarter network investments topped the previous
mark of $1.03 billion set in the fourth quarter of 1997.
With $2.06 billion invested in 377 network companies through the first half
of the year, the 1997 record of $3.64 billion in venture capital invested in 711
companies appears to be in jeopardy.
As has been the case in the past three quarters, start-ups developing wireless
communications products and services represented the most popular high-tech
investment category in the second quarter. During the past quarter, 22
wireless firms received funding.
But overall, the Internet continues to dominate network investing. Sixty
percent of the 209 network companies that received venture backing in the
second quarter are Internet-oriented.
Some of these, such as BigBook ($400,000 in bridge financing, which is a
supplemental influx of cash between rounds) and online retailer Garden
Escape, Inc. of Austin, Texas ($20 million in fourth-round funding), have
built business models around their Web sites.
However, Walden says many venture capitalists are no longer as eager to
make big bets on start-ups whose main source of revenue is derived from
drawing large audiences for advertisers.
"Not a lot of those mass providers are making money," he says. "Sure, you
have a Yahoo, but there are always exceptions to the rule."
Niche investing
Increasingly, the survey indicates that venture capitalists are financing
companies that are targeting narrow customer bases. Among the start-ups
aiming at specific audiences are:
QuestLink Technologies, Inc., of Austin, Texas, which offers Web-based
information and products for electronic design engineers.
The company received $200,000 in bridge funding from Trellis Partners.
Founded in 1995, QuestLink runs a Web site (www.questlink.com) from
which anyone in the "worldwide design engineering community" can find and
order just the right bipolar transistor or microcontroller.
New York-based Comet Systems, Inc., which was given $2.5 million in
first-round funding from Prospect Street Ventures. Founded early last year,
Comet licenses the Comet Cursor, a development tool that enables Web site
designers to customize users' cursors once they visit the site.
Premier Appraisals, Inc. of Atlanta, which scored $9 million in second-round
funding from Chrysalis Ventures, Moore Capital Management and several
others.
Premier is an electronic commerce company targeting mortgage and home
equity lenders. The company offers appraisals, title searches and flood zone
information in the Southeast.
Digital IQ Corp., based in Saratoga, Calif., which received a $2.5 million first
round of funding from Brentwood Venture Partners. Digital IQ sells software
to companies that want to run Internet promotions and coupons.
Plansoft Corp., which sells Internet-based application software to the
convention and meeting planning industry.
The company received $4.7 million in its second round of financing from
Patricof & Co. Ventures, Primus Venture Partners and Wasserstein Adelson
Ventures. Founded in 1991, Plansoft is based in Twinsburg, Ohio. The
company's Web site offers search engines for meeting facilities, supplies and
organizations.
Neoforma, Inc. of Mountain View, Calif., which runs a business-to-business
Web site for the medical industry.
The company landed a $5 million round of seed financing from Venrock
Associates. Neoforma's site (www.neoforma.com) provides customers with
information on medical products and services from more than 12,000
companies ranging from makers of cardiology equipment to bathroom supply
vendors. |
