VC turnaround eyed for tech startups

Westchester County Business Journal, Aug 4, 2008 by Soule, Alexander

In May, Bedford startup SOMS Technologies L.L.C. quietly booked $250,000 in seed capital, as it develops "green" oil filters that promise to extend vehicle mileage between oil changes by a factor of at least eight.

The company may have unwittingly become a symbol of the current state of the venture capital markets, with Hudson Valley entrepreneurs having to get a lot more mileage out of their existing assets until investors grease the economy anew.

Financiers invested $300 million in New York companies in the second quarter - down from just over $400 million in the second quarter, but still trailing only 2005 for the best first-half performance since the 2002 pop of the high-tech bubble.

Nationally, venture capital investment held steady at $7.4 billion in the second quarter, according to the MoneyTree report published by the National Venture Capital Association (NVCA) and PricewaterhouseCoopers, using data from Thomson Reuters Corp. of Stamford, Conn.

For the first fiscal quarter in 30 years, however, no venture-backed company held an initial public offering of stock, and in an NVCA survey in June, four in five venture partners indicated they do not expect the IPO market to reopen this year.

It marks nothing less than a "capital crisis" in the words of NVCA.

"Venture-backed companies that successfully enter the public markets represent a critical job-creation engine for the United States economy, and that engine has completely shut down," Mark Heesen, NVCA president, said in a statement. "We need to 'put regulators, legislators, presidential candidates and the private sector on notice that this situation represents a -serious problem that will have long-reaching economic implications if not addressed. We view this quarter as the 'the canary in the coal mine.'"

What's more, NVCA and Thomson Reuters tracked just 50 acquisitions of venture-backed companies during the quarter, the lowest number since the fourth quarter of 1999.

Worktopia Inc. was the lone company in the Hudson Valley region to record a significant tranche of venture capital. in the second quarter, raising $5 million from the European Founders Fund and previous investors.

Based in Harrison, Worktopia is offering an Internet-based teleconferencing service for use in hotels, airports and .conference centers. Founder John Arenas previously founded Stratis Business Centers, a meeting suite operator that was acquired by Reps plc of the United Kingdom.

Cara Therapeutics Inc., meanwhile, is developing into a migraine for New York economic development officials. Founded in Tarrytown, the path-medication startup took a package of incentives to relocate to Shelton, Conn., last year, costing Westchester County what might have been among its fastest growing companies. In the second quarter, Cara Therapeutics added $12 million in the quarter to what is now a $36 million "series C" round of funding.

Co-founders Norbert Assion, Miles Flamenbaum and Debashis Sahoo hope to match that success with SOMS, which stands for spin-on micro filter system. SOMS raised its initial seed funding from Advantage Capital Partners, having revealed plans to raise $4 million at venture fairs in Stamford and Rochester, as it aims for nearly $50 million in revenue within two years.

The company has tested the system on more than 100 vehicles to date, with one traveling 54,000 miles without an oil change.