Mar 18, 2005

Utah venture capital on the rise

Utah venture capital on the rise Grace Leong DAILY HERALD Startup companies in Utah received a robust infusion of venture capital funding in 2004 as a stronger national economy and a continued rebound in the technology sector continue to fuel venture spending. The 2004 Annual Deal Flow Report, which tracks venture deals in Utah -- found venture funding surged 75 percent statewide to $399. 5 million in 2004 from $228.6 million in 2003. The report is created by MountainWest Venture Group, which on Thursday announced its name change to MountainWest Capital Network to better reflect its role in fostering deal flow information. That growth is significant, analysts say, even when compared with nearly $1 billion in venture capital raised in Utah in 2000 at the height of the dot-com sector euphoria. "The number of transactions and their total evaluations statewide are very encouraging, showing the tech sector has definitely rebounded," said Todd Stevens, managing director of Wasatch Venture Fund in Salt Lake City. He cited a 38-percent jump in the transaction value of all 151 deals in Utah to $3.9 billion in 2004 from a year ago. That includes a 75-percent jump in the transaction value of venture capital deals in Utah to $399.4 million, a 60-percent jump in the transaction value of merger and acquisition deals statewide to $1.06 billion in 2004, and a 211-percent jump in the transaction value of other funding activity to $1.67 billion. Brad Bertoch, president of Wayne Brown Institute, said the MountainWest report showed Utah has "turned the corner in venture investments." Companies that attract venture capital are typically in biotechnology, information and medical devices technology. Even with prominent software companies such as Novell relocating its corporate headquarters from Provo to Waltham, Mass., Bertoch said Utah hasn't lost its luster as a key technology hub as there are at least 13 other Utah technology companies that reported more than $100 million in sales in 2004 -- a level not seen since the dot-com days. "Utah companies like Control4, Forum Systems, Oakley Networks, Altiris, NextPage and MyFamily.com all did well since the dot-com crash and have attracted a lot of money and created lots of credibility in Utah," Bertoch said. Many analysts remain upbeat even as the MountainWest report found venture funding in Utah County fell by about 12 percent to $60.9 million in 2004 from $68.9 million in 2003. "If there is a downtrend, it must be a temporary blip because the overall national and statewide trends are good, and Utah County remains a key tech hub for the state," Stevens said. Omniture, an Orem Web analytics solutions company, was recognized by MountainWest as the largest Utah County venture funding deal for raising $14.5 million from Hummer Winblad Venture Partners and others. "Utah County companies are getting funding through venture capitalists and private or angel investors like the Utah Angels, or with assistance from BYU's Marriott School," said Damon Kirchmeier, chief operating officer of UTFC Financing in Salt Lake City. But of concern is a relatively small volume of initial public offerings in Utah in 2004, compared against a robust IPO market nationwide, Stevens said. And there weren't any public offerings held by Utah County companies, compared with $86.8 million raised in 2003, the report said. But Scott Young, chairman of the Deal Flow Committee, saw the $779 million raised in public offerings statewide in 2004 as a "respectable achievement in a year that many IPOs and other public offerings were postponed or withdrawn because of uncertain market conditions." Of five public offerings listed in 2004, Extra Space Storage's $290 million IPO was the largest. Some $1.4 billion in funds was raised through public offerings in 2003, the report said. Countywide, mergers and acquisitions totaled $75.7 million in 2004, down from $235.1 million in 2003. But Stevens said a dramatic jump in late 2004 in merger and acquisition activity in the technology sector nationwide should offer hope for the Utah market, he said. "Because the stocks of some of these Utah technology companies are trading at higher levels and companies' stock valuations are better, they have more money to buy into technology," Stevens said. Altiris of Lindon bought three technology companies in 2004 as part of its efforts to grow market share and expand its offering in software security and network management. Altiris acquired F.S. Logic for $1.8 million in February, BridgeWater Technologies for $2.9 million in August and Tonic Software for $6 million in December. "There's a lot of consolidation taking place. Many of our smaller competitors are being bought by larger companies. In order to compete, we need to expand our portfolio of technology and products," said Susan Richards, director of corporate communications with Altiris. Of significance also is $250 million raised by Sorenson Capital in Lehi in 2004, up from $750,000 in 2003, analysts said. "Those funds may be spent in leverage buyouts and mezzanine-level financing of late-stage companies, including some in Utah County," Bertoch said. This story appeared in The Daily Herald on page D6.