Computer Hardware Wrap: Climate Has Changed

When it comes to getting venture capitalists to fork over the dough, the computer hardware industry is having a much tougher time than it did a year ago.

According to our VentureXpert database, only 164 computer hardware companies received a total of $1.1 billion so far this year, compared to the $3.3 billion secured by 256 such companies the year before. That is a decrease of over 40%, and with just a little more than a month left in 2001, it is virtually certain that the sector will not be able to match last year’s final numbers.

Making matters worse very little in the way of computer hardware deals have come down the pipeline since the 9/11 attacks. Less than 10% of the sector’s 165 deals have been completed since September. Additionally, more than half of the deals completed after the attacks were for less than $10 million.

Not everything in the computer hardware sector over the past two months has been gloom and doom, however. In mid-October, London-based Celoxica, a developer of digital hardware programming language applications, managed to nab $30 million in a Series B round of private equity financing, making it the third largest deal this year. Compared to last year’s computer hardware disbursements — where snagging $30 million didn’t even make a company’s deals one of the 25 largest – Celoxica’s take was nothing to sneer at.

“We are delighted to have received this level of financing and proud to have closed one of the largest rounds of private equity this year,” said Jon Treanor, president and chief executive of Celoxica. “The investment is supporting the development of new technologies and their delivery to the marketplace.”

Investors on that deal included Advent Venture Partners, Cazenove Private Equity, Intel Capital, the Isis College Fund, Quester Venture Capital Trust and Wind River Ventures. UBS Warburg acted as the placement agent.

So far, only two computer hardware companies have raised more venture funding than Celoxica in 2001.

The first is Applied Science Fiction Inc., an Austin, Texas-based digital photo imaging producer which secured $40 million in March. The deal syndicate consisted of 13 investors, but Applied Science Fiction was forced to take a major cut in its valuation. In March 1999, the company received a post-money valuation of $188 million. This past March, its post-money valuation was lowered to $77 million.Next up was digital publisher iUniverse.com Inc., which raised $39 million over two rounds despite in dotcom suffix. On the heels of receiving $18 million in its second round of financing, iUniverse printed and sold over 750,000 books, a record in the online publishing industry. The company received its last round of funding solely from Warburg Pincus. Gemfire Inc., an optical component company, topped the VC-backed computer hardware charts last year. It raised $72 million in one round and had a post money valuation of $214 million.

Danielle Fugazy can be contacted at Danielle.Fugazy@tfn.com