Week 02/12/2007 through 02/18/2007

Prepared by Capital Hunter analysts:

Venture capital investment predictably slipped this period, with only 30 companies receiving $445 million, a 25% drop from last period’s surprising $590 million. In spite of this bit of bad news, however, the dispersion of funding that surprised us in our last newsletter held up once again, as no sector received more than 24% of the total capital invested this period. Biotechnology companies were the recipient of that 24%, as a few of these hauled in huge sums, including Bridge Pharmaceuticals, which received $35 million from Granite Global Ventures and host of previous venture investors, and NextWave Pharmaceuticals, which received $40 million from Sofinnova Ventures and Vivo Ventures. Digital marketing companies were also popular this period, as Reactrix Systems received $48 million in Series C funding in order to continue expansion of their interactive media networks in malls and movie theaters throughout the country and iCrossing, which focuses on online advertising promotions, raised $18 million from Oak Investment Partners and RRE Ventures and plans to use the new capital to fund acquisition and growth opportunities, as it just recently acquired UK-based search marketing agency Spannerworks. Another surprising development was the lack of software investment, which is usually the leading sector in terms of the number of companies funded in any given week if not the total amount of capital. Only three companies received an investment of any sort, down from ten the week before and the $32 million raised by the three companies was the lowest amount of software investment that we can remember here at Capital Hunter. We expect software investment to make a comeback next week, with software and life science investment likely leading the other sectors. We do not expect to see a continuance of the funding balance that we have seen the past few weeks, and think investment will coalesce around a few industries (probably life sciences companies) in the upcoming weeks. Stay tuned.

The IPO market regained some sanity from last week’s explosion of public offerings, as only five companies listed this period, including two VC-backed firms. The largest of the bunch, OpNext, an affiliate of Hitachi and a producer of components for fiber-optic networks, raised over a quarter billion and is currently trading about 16% higher than its offering price of $15.00 a share. OpNext, which received venture capital from the Marubeni Group and Clarity Capital in 2001, will still be partially owned by Hitachi, which will keep a 46% stake in the company. Salary.com, another venture backed company, also rose in its first day of trading, and is now trading at approximately a 25% premium to its $10.50 a share offering price. Salary.com received $2 million in 2001 from Lyric Capital and other accredited investors, and provides a salary database that companies can use to get salary comparisons. Other companies that listed this period can be seen below:

Converted Organics NASDAQ:COINU priced at a mere $9.9 million and is a manufacturer of soil products using organic food waste.

Geneva Acquisition AMEX:GAC.U priced at $60 million and is a blank-check company looking to acquire assets in the healthcare sector.

Salary.com NASDAQ:SLRY priced at $59.85 million and is a provider of on-demand compensation management solutions..

Quadra Realty Trust NYSE:QRR priced at $250 million and is a provider of commercial real estate financing services.

OpNext NASDAQ:OPXT priced at $253.64 million and is a provider of optical modules and components for high-speed data communications networks.

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CapitalHunter.com was able to verify that $445 million of venture capital was invested in 30 U.S.-based companies during the past week. The average deal size was approximately 14.83 million. The amount of venture capital invested this period decreased by 25% compared the last period’s $590 million.

California was the largest recipient of venture capital funding this week. Fifteen California companies raised $253.4 million in new equity financing, which accounted for 57% of the total venture capital invested this reporting period. The largest venture investment in California was placed into the earlier mentioned Reactrix Systems. Reactrix Systems raised $48 million in Series C funding and is a provider of interactive digital networks for malls and movie theaters.

The biotechnology sector raised the most venture capital this reporting period, with five companies raising $100.2 million in venture financing. Biotechnology companies accounted for approximately 24% of the venture capital this period. The largest venture investment in the sector was placed into the earlier mentioned NextWave Pharmaceuticals. NextWave raised $40 million in Series B funding and is a developer of next-generation pediatric therapeutics.

Start-ups raising their second stages of funding represented the largest share of the funding pie, as 40% of all money invested this period went into such companies. The largest Series B funding was placed into the previously mentioned NextWave Pharmaceuticals.

The three largest venture deals this period are as follows:

The following seven companies and other unnamed investors funded the above mentioned top three venture capital investments for $120 million:

A total of 60 equity financings of private and public companies occurred during this reporting period. Each of the 60 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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