Looking for Catalysts

By Scott Irwin
El Dorado Ventures General Partner

Catalysis is the acceleration of a chemical reaction by means of an outside agent called a catalyst. Scientifically speaking, a promoter is an accelerator of catalysis, but not a catalyst by itself.

At El Dorado Ventures, we are always on the lookout for potential market catalysts, external forces that increase the rate of growth in the technology markets where we invest. When we invest in an early-stage company, we become an active supporter, adding value in the form of hands-on guidance, helping to recruit key executives and providing the company with access to a range of industry contacts and technology experts. It's our hope that this combination of company, catalyst and promoter will rapidly accelerate the creation of value for customers, employees and shareholders.

It's often easy to see catalysts in hindsight. But to be successful early-stage investors, we need to look over the horizon to identify potentially large trends and to recognize the unique characteristics of catalysis long before they are obvious. As a partnership, we sit down once a year to in an attempt to do just this. This year, we focused on markets outside our core IT focus. Over the 21-year history of El Dorado Ventures, some of our biggest winners have come from companies outside the pure IT markets. (For a list of areas of interest within the IT markets, please see the What We're Looking For Section on the right)

Here are four trends and associated catalysts that emerged from our most recent retreat:

• Non-traditional advertising: Spending on print, radio and TV ads has been falling consistently due to competition from online advertising. Recently, mobile and a new generation of targeted online ads have been the latest to take budget from the traditional media outlets. We live in a TiVo world - consumer attention is hard to hold particularly if your message is an advertisement. How do you capture the attention of short-attention-span consumers? How do you reach consumers in a TiVo-addicted world? We are looking to non-traditional advertising to fill the void. We're particularly interested in the potential for out-of-home advertising, such as digital signage, which is forecast to grow into a $3.7 billion market in the U.S. by 2011. For example, in Asia, you can see full-motion video ads filling the entire sides of skyscrapers in some major cities. Another example is in-theater advertisements, which run before the movie starts to a captive, out-of-home audience. We believe there will be many opportunities to innovate with non-traditional advertisements and out-of-home venues to provide meaningful ways to capture consumer attention outside the print, media, Internet and emerging mobile channels.
  
  
• Demographic-driven healthcare: Beginning as infants, Baby Boomers have transformed every social institution they've come in contact with. Now, as boomers have started to reach their 60s, it's the healthcare industry that may be ripe for change. According to the U.S. Census Bureau, between 2000 and 2020 the number of Americans age 65 and older is expected to increase by 54%, and the number age 55 to 64 is expected to increase 73%. Unlike their "doctor knows best" ancestors, boomers are bringing new demands to healthcare, including a desire for more connectivity with care providers and greater choices in how healthcare is delivered. Boomers also are the principal decision makers for the healthcare of their parents' generation and more are turning to the Internet first. We believe there will be a number of opportunities to leverage technology to provide personalized medicine, connected healthcare (such as remote monitoring and telepresence) and for leveraging the Internet for self-directed healthcare.
  
  
• Consumer finance: Consumer debt is at an all-time high and we believe the inability of consumers to service this debt will be a catalyst for an entirely new field of consumer financial services. We envision a number of technology-enabled services to help consumers get their personal finances under control, particularly in a high consumer debt-to-equity and adjustable rate mortgage environment. Areas ripe for innovation include online debt consolidation and workout services, short-term loans, credit building services, market-based mortgage insurance and payments services, as well as comparison-shopping services to facilitate consumer finance decisions. Currently, we are seeing novel ideas for credit and prepaid models targeting "aspirationals," peer-to-peer lending and community-based credit scoring. This is just the beginning of a significant trend.
  
  
• Ethnic-based marketing: We believe there will be a huge opportunity to provide tailored services to segments of the population traditionally below the radar of corporate America, including large ethnic minorities such as Latinos, African-Americans and Asian-Americans. Among these, Hispanics represent the largest segment, roughly $200 billion in annual purchasing power, and Asians represent the fastest growing. These groups seek products and services tailored and marketed to their unique needs. They are attractive due to the enormous spending power they represent, their credit-worthiness and the fact that they can now be targeted and served cost-effectively using technology. Banks are among the first to recognize the opportunity, rolling out new offerings such as credit cards, check cashing and cross-border money transfers for minority residents and immigrants, collecting $11 billion in fees annually from these services. In addition to banking, we believe there will be many other opportunities to service these ethnic groups, such as wireless service, Internet retail, media and content, and other financial services.

What We're Looking For

El Dorado Ventures seeks to invest in a select number of companies pursuing opportunities in the following broad categories:

• Communications
  (IP video infrastructure, digital signage, machine-to-machine)
• Services
  (e-commerce tools, green consumer services, media recommendations)
• Software
  (SaaS, Enterprise 2.0)
• Emerging Technologies
  (energy storage, solid state lighting)

Sana Security Names Don Listwin CEO, Raises $12 Million
San Mateo-based Sana Security, the leading behavioral security software company, named industry veteran Don Listwin CEO and raised $12 million in new funding led by El Dorado Ventures to fuel the company's expansion. Listwin is the former CEO of Openwave (Nasdaq: OPWV) and was a senior executive with Cisco Systems. El Dorado Ventures incubated Sana and provided seed funding as well as follow-on financing. EDV General Partner Charles Beeler serves on the Sana board. www.sanasecurity.com

Ericsson Acquires Entrisphere
Ericsson (Nasdaq: ERIC) acquired Santa Clara-based Entrisphere, which provides a fiber broadband access platform to incumbent carriers. The acquisition is designed to strengthen Ericsson's fixed broadband access portfolio and its position in converged networks. EDV participated in Entrisphere's second round of venture capital financing.

Convio Acquires GetActive Software
Austin, TX-based Convio, Inc., a leading provider of online constituent relationship management solutions (eCRM) for nonprofit organizations, acquired Berkeley-based GetActive Software. The acquisition is expected to significantly strengthen Convio's ability to provide innovative Internet solutions that help nonprofit organizations build high-impact fundraising, marketing and advocacy campaigns. EDV co-led GetActive's first round of venture capital funding. Following the acquisition, EDV General Partner Scott Irwin, who had served on GetActive's board, joined Convio's board. www.convio.com

WebTrends Acquires Clickshift
Portland, OR-based WebTrends, the market leader for web analytics and Marketing Performance Management solutions, acquired ClickShift, an innovator in online advertising optimization. EDV co-led the seed round of VC financing for ClickShift. Following the acquisition, EDV General Partner Scott Irwin, who had served on ClickShift's board, joined the WebTrends board. www.webtrends.com

Samsung Makes Strategic Investment in Strix Systems
Samsung Ventures America made a strategic investment in Calabasas, CA-based Strix Systems, a worldwide leader in wireless mesh networking. In making the investment, Samsung Ventures reviewed nearly all wireless mesh products on the market, and decided that Strix has the best solutions, especially in supporting mobility, voice and video over wireless mesh. EDV co-led Strix' seed round of venture capital financing. EDV General Partner Tom Peterson serves on the Strix board. www.strixsystems.com

Blaze DFM Raises $10 Million in Series B Financing, Acquires Aprio Technologies
Sunnyvale-based Blaze DFM, which provides electrical DFM software solutions that maximize parametric yield for sub-100nm chips, closed a $10 million Series B financing round and completed the acquisition of Aprio Technologies. The financing round included El Dorado Ventures, Mobius Venture Capital and Lightspeed Venture Partners. EDV General Partner Tom Peterson, who had served on Aprio's board, joined the board of Blaze DFM. EDV co-led Aprio's first round of venture capital funding. www.blaze-dfm.com

Coghead Closes $8 Million Funding Round
Redwood City-based Coghead raised $8 million in second-round funding led by new investor American Capital Strategies Ltd. (Nasdaq: ACAS), with participation from SAP Ventures, a division of SAP AG, and El Dorado Ventures. Coghead will use the funds to promote and support the large-scale adoption of its web-based application creation and delivery platform. El Dorado Ventures provided seed financing to Coghead. EDV General Partner Charles Beeler serves on the Coghead board. www.coghead.com

Cortina Systems Acquires ImmenStar
Sunnyvale-based Cortina Systems, a fast-growing leader of intelligent communication solutions, acquired ImmenStar, Inc., a privately held semiconductor company that specializes in passive optical network (PON) System-on-Chip (SoC) technology. The acquisition enables Cortina to extend its leadership across multiple markets - from the core of the network to subscriber access points - by delivering a unique portfolio of products that combine intelligent bandwidth, the highest density and the lowest power requirements. EDV co-led Cortina's first round of venture capital funding. www.cortina-systems.com

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