Week 05/22/2006 through 05/28/2006

Prepared by Capital Hunter analysts

Despite Memorial Day weekend (deal flow reporting has a tendency to fall near holidays), venture capital investment was fairly robust with nearly $440 million invested across 41 companies, a welcome increase from the mediocre amounts lavished on companies during the previous reporting period, when total VC investment was just north of $300 million. In addition to the strong investment totals many different sectors received substantial funding, as you can see from the pie chart below. While software grabbed the most funding, less popular sectors, including business services, industrial & energy and computers & peripherals received solid funding as well. IAG Research, a New York City based provider of market analytics for the television market, was the week’s largest funding, garnering nearly $47.5 million in late stage funding from A-list firms Insight Venture Partners and Bessemer Ventures. Another company, Energy Innovations, a manufacturer of rooftop photovoltaic (PV) solar concentrator systems, received $25 million from Bill Gross’ idealab and Mohr Davidow Ventures. These are just a few of the companies (nine) that had big ($15 million plus) paydays this reporting period.

There were only three initial public offerings last week, but you have probably heard an awful lot about two of these companies. Vonage, the market leader in Voice-over-Internet-Protocol (VoIP) telephony services, priced 32.5 million shares at $17 a pop, or $531.25 million, and has sank sharply since its debut Wednesday. One reason people are lukewarm to Vonage is the fact that their expenditures on marketing are greater than their total revenues (as in sales, not earnings, of which Vonage has none), which has caused Vonage to bleed money at an astounding rate despite its fabulous growth (this should sound similar to investors in Internet companies during the late nineties, or Sirius or XM Satellite Radio today) in sales. Another reason investors are scared of Vonage is due to the fact that cable companies like Cablevision and Time Warner are offering “triple play” packages of video, voice and online access, which puts stand alone companies like Vonage at a disadvantage. Throw in the rapid growth of companies like Skype, and you can see why investors are staying away.

MasterCard, on the other hand, popped on its first day of trading, jumping all the way to $46 a share from its offering price of $39, before coming down a bit on Friday and Tuesday. MasterCard priced approximately 65.2 million shares at the aforementioned $39 a pop, which if you do the math comes to about $2.4 billion dollars, which makes MasterCard the second largest IPO in history not adjusted for inflation (In case you’re wondering, the largest IPO of all time is Goldman Sachs, which priced at around $3.6 billion in May of 1999. Google is the third largest, having raised $1.67 billion in August of 2004). The underwriters underpriced the IPO intentionally in order to give the stock some oomph, and it responded quite nicely. And last but not least (okay in terms of marketability this company is the least of the three) Mueller Water Products priced 25 million shares at $16 a share, for gross proceeds of $400 million, which in a normal week might be the largest offering, but was essentially lost in the shuffle this week. Nevertheless, Mueller rose from its opening, going as high as $17.20 before sliding back to around $16.20 on Tuesday. Without further ado, here are the links (and some previously mentioned info) for the week’s big IPOs.

Vonage NYSE:VG priced at $531 million and is a provider of VoIP services.

MasterCard NYSE:MA priced at $2.4 billion and is a provider of global credit and debit payment solutions.

Mueller Water Products NYSE:MWA priced at $400 million and is a provider of water infrastructure and flow control products.

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CapitalHunter.com was able to verify that $439 million of venture capital was invested in 41 U.S.-based companies during the past week. The average deal size was approximately 10.71 million. The amount of venture capital invested this period increased by 36% compared to last periods $322 million.

California was the largest recipient of venture capital funding this week. Twenty California companies raised $187.7 million in new equity financing, which accounted for 46% of the total venture capital invested this reporting period. The largest private venture financing in California was placed into the earlier mentioned Energy Innovations.

The software sector raised the most venture capital this reporting period, with twelve companies raising $89.2 million in venture financing, which accounted for 20% of the venture capital this period. The largest private venture financing in the software sector was SuccessFactors. SuccessFactors raised $25 million in Series B funding and is a provider of business management software used to correlate employee incentives to performance.

Start-ups raising their second stages of financing represented the largest share of the funding pie, as a whopping 31% of all money invested this period went into such companies. The largest such financing was placed into the aforementioned SuccessFactors.

The three largest venture deals this period are as follows:

The following nine companies and other unnamed investors funded the above mentioned top three venture capital investments for $118.5 million:

A total of 72 equity financings of private and public companies occurred during this reporting period. Each of the 72 equity financings are profiled in a weekly (in this case biweekly) report which include venture financings, private placements, secondary offerings, PIPE’s, and IPO’s.

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