Week 08/27/2006 through 09/03/2006

Prepared by Capital Hunter analysts:

Venture capital investment dropped to $443 million this period, partly due to Labor Day weekend (expect disbursements next week to be down as well) and partly due to a lack of mega deals we have become accustomed to the past few months. The largest investment this period was placed in Zogenix, a San Diego-based biotechnology company which raised $60 million in order to complete the acquisition of the Intraject® technology assets from Aradigm Corporation and to complete its executive management team. Force10 Networks was the next largest funding, having raised $50 million in late stage funding ($35 million has been raised already and another $15 million is on the way) from a group of undisclosed investors. The capital infusion Force10 received was in lieu of an IPO, which the company postponed due to Sarbanes-Oxley requirements and other market conditions. Other than the investments received by Bronchus Technologies and SinglePoint, which raised $29.5 million and $30.75 million, respectively, few fundings were of any note. Check back next week.

California received the lion’s share of the funding for the period, even more so than usual. Nearly two-thirds of all venture dollars went to companies domiciled in the Golden State, which you can see below. Massachusetts makes an appearance once again, in which we mentioned last newsletter that Massachusetts getting shut out for a week was nothing to be concerned about. Biotechnology received the most venture capital this period, with five companies receiving in excess of $10 million a piece, led of course by the Series A investment made in Zogenix. Industrial & energy funding stalled this period but we still expect to see big fundings down the road, perhaps this coming week. For more information read the blurbs below.

Once again, there was only a single IPO this period, and once again it was a blank check company looking to complete a merger or stock exchange with another company. The company, Energy Services Acquisiton, priced at $51.6 million and currently trades under the ticker symbol ESA.U on the American Stock Exchange. Hopefully this doesn’t signal a worsening of a trend in the market for public offerings since the beginning of the year, which while mediocre was never quite this bad. May better tidings await our promising next-generation corporations.

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CapitalHunter.com was able to verify that $443 million of venture capital was invested in 34 U.S.-based companies during the past week. The average deal size was approximately 13.03 million. The amount of venture capital invested this period decreased by 16% compared to last two periods (the two weeks previous to this one) $529 million.

California was the largest recipient of venture capital funding this week. Nineteen California companies raised $288.9 million in new equity financing, which accounted for 65% of the total venture capital invested this reporting period. The largest private venture financing in California was placed into the earlier mentioned Zogenix.

The biotechnology sector raised the most venture capital this reporting period, with five companies raising $111.4 million in venture financing, which accounted for over 25% of the venture capital this period. The largest private venture financing in the biotechnology sector was Zogenix.

Start-ups raising their late stages of funding represented the largest share of the funding pie, as 39% of all money invested this period went into such companies. The largest such financing was placed into the previously mentioned Force10 Networks.

The three largest venture deals this period are as follows:

The following eleven companies and other unnamed investors funded the above mentioned top three venture capital investments for $140.75 million:

A total of 51 equity financings of private and public companies occurred during this reporting period. Each of the 51 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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