State venture deals soar to $141 million
Phoenix Business Journal - by Ken Brown The Business Journal
A rising national tide of venture capital investment last year helped lift Arizona investments to $141 million, the highest level of growth-stage financing ever recorded in the state.
According to figures compiled by Big Five accounting firm PricewaterhouseCoopers, 1998 venture investments topped 1997 figures by $18.8 million. Those figures reflected a record year nationally of $14.7 billion, an increase of about 24 percent.
"It looks like 1998 will be remembered as the year of the entrepreneur," said Russ McQueen, a PricewaterhouseCoopers partner who specializes in high-tech firms.
Not surprisingly, technology companies performed exceptionally well across the country, accounting for more than three-quarters of total investment. In Arizona, tech firms took about $100 million of the year's total, up from $72 million the year before. Arizona software and information-technology firms, meanwhile, took in $36 million, more than double the previous year's total of $16 million.
For the last quarter of 1998, four Arizona companies received $25 million. They include Phoenix wireless communications firm STPCS Joint Venture LLC ($10.5 million); Tucson elderly care provider MatureWell ($10.8 million); Scottsdale software maker SalesLogix Corp. ($2.5 million); and Phoenix telephony system designer Xantel Corp. ($1.1 million). MatureWell and Xantel only three months earlier had collected a combined $6 million.
Despite the record-setting totals, those active in Arizona's venture capital community hope to attract even more money for growing companies.
On March 15, Profit Dynamics Inc., a Scottsdale company that helps firms find money, is organizing a "virtual" venture capital conference that will link investors and growing companies over the Internet.
And on April 5, the Arizona Software Association plans its second annual Investing in Innovation conference, which is designed to match investors with Arizona information technology companies looking for money.
Ed Denison, executive director for the group, said Arizona technology companies face some hurdles in attracting venture capital when compared to their counterparts in Silicon Valley, Boston or New York, but added that the challenges are not insurmountable. The main difference, he said, is the number of venture funds located in those areas.
"If they can invest locally and don't have to jump on a plane to check up on things, it's easier for them to do that," he said. "But if we have a good labor pool, and a good pool of bright up-and-coming companies, the funds will come."
Still, he added that the absence of a state-funded venture fund puts Arizona at a distinct disadvantage to areas that do. ASA is one of the supporters of a bill that would set aside a portion of the state's retirement fund for a pool of venture capital for growth-stage companies here.
The private sector has forged ahead with local investment money of its own, including Valley Ventures II, a $20 million fund raised by John Holliman, and VentureCap Fund I, a $750,000 pool founded by Robert Dunaway.
McQueen predicted an even better 1999, which would mark the fifth straight record year for the state.
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