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InformationWeek.com April 16, 2001
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Follow The Money
Tracking venture capital, IPOs, corporate investment, and R&D funding

Edited by Brain Dakss (bdakss@cmp.com)

VC Climate: Chilly
Companies with venture-capital money behind them are feeling the chill of the cooling economy.

Only five VC-backed companies went public from January through March, raising $467.5 million; that compares with 70 IPOs that raked in $7.5 billion in the year-ago quarter, a study by VentureOne shows. VC investments plunged almost 50% in the January-through-March span from the same period a year ago to $14.5 billion, a VentureWire survey shows. The VC arms of several big IT companies have seen the value of their portfolios plummet in recent months, analysts say.

Still, they add, the VC well won't run dry. "We won't see investors ever be as free again with their money as we saw in the last couple of years," says William Hager, CEO of VC incubator Cenetec. He says VCs will put their money in "more prudently and will insist upon young companies having viable business models."

--Tischelle George (tgeorge@cmp.com)

CityNet Goes The Extra Mile To Lure Funds
Watch out Ed Norton! CityNet Telecommunications, which uses expensive Swiss robots to deploy fiber in sewers to solve the problem of high-speed "last-mile" connections between long-distance carriers and buildings, last week received an additional $175 million in funding and $100 million in debt financing.

CityNet will avoid the huge expenses, long waits, and disruption from digging trenches along city streets to lay fiber by using robots that resemble old Electrolux vacuum cleaners with wheels. Each robot is fitted with a $20,000 high-resolution camera and a windshield wiper to keep the lens clean while navigating sewer systems.

CityNet estimates that traditional trenching lets a company lay a mile of fiber a day; it says it will be able to do the same length in less than an hour. CityNet resells capacity on its fibers to telecom providers, letting them offer high-speed services directly into buildings. "Their approach promises to really change the market for fiber connections by making fiber deployment easy,'' says Andrew McCormick, a senior analyst at the Aberdeen Group.

Investors in this round of funding include the Carlyle Group and Berkshire Partners. CityNet has signed license and access agreements with Albuquerque, N.M., Indianapolis, and Omaha, Neb., and says it's negotiating deals with 28 other U.S. and European cities.

--Bob Wallace (bwallace@cmp.com)

Broadbase Widens Its Base In Merger With Kana
It's not enough to just sell narrowly focused applications anymore, and Broadbase Software knows it.

The maker of analytical applications and marketing-automation software plans to merge with Kana Communications, which makes Web-based marketing, sales, and service software, in a deal valued at $75.8 million. The resulting company, Kana Software, will bill itself as an enterprise-relationship management company.

Broadbase's marketing-automation and E-services software analyzes customer data from varying customer touch points, giving execs information to help improve marketing, upselling, content, and personalization. That software will be integrated into Kana Communications' Web-based interaction applications to give businesses a global view of customers.

Jupiter Media Metrix analyst David Daniels says adding analytical capabilities to all applications could be a big selling point. For Broadbase, the combination is essential.

"It's not as much a consolidation as it is about 'game over,' " says Steve Robbins, a product-marketing director for Broadbase, "because if you're a pinpoint solution, you're dead."

--Eileen Colkin (ecolkin@ cmp.com) and Antone Gonsalves