Networking company gets $26 million venture = inflow

A new computer chip that can process information faster = comes out=20 about every six months. But systems that funnel that = information=20 into computers storing data have not kept pace, leaving many = corporations with networks that are unwieldy and expensive = to=20 maintain.

Infinicon Systems Inc., of King of Prussia, is working to = change=20 that.

The two-year-old start-up raised $26 million from several = venture=20 funds in February to get its Iris hardware and software = system,=20 which can transfer data to computer servers at three times = the rate=20 currently available, into the marketplace by the end of the = third=20 quarter.

Infinicon's financing was the largest amount invested in = an area=20 firm during the first quarter, according to the=20 PricewaterhouseCoopers/Thomson Venture Economics/National = Venture=20 Capital Association MoneyTree Survey.

According to the report, venture funds invested $133.8 = million in=20 Philadelphia-area companies in the first three months of = 2002,=20 compared with $155.8 million in the same quarter last year, = and=20 $373.6 million in the first quarter of 2000.

The amount invested in the most recent quarter nearly = matches the=20 $132 million invested by venture capitalists locally three = years=20 ago.

Young companies seek venture capital when they need money = to=20 expand or to commercialize a new product. Often, such = companies=20 cannot afford to borrow from banks and other lenders. In = return for=20 their money, venture funds receive part ownership and some=20 management control of the business.

Venture capitalists hope to profit in three to five = years, when=20 the business is bought by another company or when it sells = shares=20 through an initial public offering.

While the amount of money invested by venture-capital = firms grew=20 rapidly in the late 1990s, the business has cooled since the = stock=20 market peaked in 2000. The latest MoneyTree survey shows = that the=20 nation as a whole experienced a steep decline in venture = investing.=20 In the first quarter, investments totaled $6.2 billion - = less than=20 half the $12.8 billion invested in the first quarter last = year.

During the quarter ended March 31, Silicon Valley = companies=20 attracted $2.1 billion, half the amount recorded in the = first=20 quarter of 2001. Despite the decline, Silicon Valley remains = the=20 number-one area in the world for venture investments.

The New York area's venture investment fell 72 percent - = the=20 biggest drop of any metropolitan region, according to the = MoneyTree=20 survey.

"What you're seeing is some reality in the marketplace," = said=20 William Molloie, a partner in PricewaterhouseCoopers = L.L.P.'s=20 Philadelphia office.

The values of most start-ups have dropped precipitously = over the=20 last year, so venture funds no longer need to invest huge = sums to=20 get good returns, Molloie said.

Richard Fox, a managing director of Cross Atlantic = Capital=20 Partners in Radnor, agreed.

"As bad as this contraction is, it's the silver lining = for the=20 next expansion," he said. "Lower valuations will be more = evident,=20 and stronger companies will be competing for [venture] = dollars."

Bruce Luehrs, general partner in Edison Venture Fund's = Bala=20 Cynwyd office, said venture capitalists had returned to = investing in=20 companies with solid business models.

"We're in a normal environment" again, he said. "It's = business as=20 usual. It's back to basics in many ways."

The survey also noted that software companies nationally=20 accounted for the most transactions and raised the most = money during=20 the quarter. In the Philadelphia area, software companies = were=20 involved in the most deals but raised a total of $7.7 = million - less=20 than a third the amount raised by Infinicon, which is a = networking=20 and equipment company.

Infinicon - founded by Philip Murphy and Todd Matters, = former=20 Unisys Corp. executives - raised $7 million in its first = round of=20 funding in 2000 to develop Iris, a hardware and software = system that=20 aims to streamline server connections and reduce network = management=20 costs.

"Every server in a data center today gets stuffed full of = Ethernet cards, storage cards and other cards... . You have = 10 to 12=20 connections coming out of it," said Infinicon's chief = executive=20 officer, Chuck Foley.

"It's not a big deal for one server, but it is for 2,000 = servers.=20 You literally build your own spider web that you have to=20 manage."

Iris is being tested at a few computer companies. = Infinicon hopes=20 to sell the systems to such giants as Dell Computer Corp. = and Compaq=20 Computer Corp. Those companies would resell the systems to=20 corporations and government agencies that process large = amounts of=20 data.

Another area company that attracted more than $20 million = is=20 Protarga Inc., a Norristown pharmaceutical company that = raised $24=20 million. The company, which filed for an initial public = offering=20 Dec. 11, is developing drugs for certain cancers and = neurological=20 disorders.