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Tech firms capturing capital

By   /   Friday, September 12th, 2008  /   Comments Off on Tech firms capturing capital

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Despite its small size compared to Silicon Valley, Santa Barbara is emerging as a major player in Web-based applications and computing.

Tri-county technology companies racked up at least $23 million in venture capital and angel investments in the second quarter of 2008. The bulk of that investment went into Santa Barbara-based Web software startups: Appfolio, RightScale and EZ-Assure.

But the marquee-name backers who supplied the money say as much or more than the dollar figures. Funding has come from sharp-eyed investors such as Silicon Valley-based Benchmark Capital – the firm that invested early in ventures such as eBay, Jamba Juice and Jamdat – and Cisco Systems, the Internet backbone giant.

Seismic shifts in technology lie beneath the investments: As network speeds increase, software and computing power increasingly reside on far-away servers instead of local machines and are being accessed through the Web.

Strident tech prognosticators are heralding the demise of the operating system as previously known in favor of the Internet browser, as shown by search giant Google’s recent foray into that market. Santa Barbara contains a small but talented nucleus of entrepreneurs who stand ready to take advantage of increasingly Web-based computing.

“You can trace [Santa Barbara’s success in Web applications] down to a relative few people, but it’s definitely gotten attention from A-level venture capitalists,” said Brian Donahoo, chief executive officer of Appfolio and veteran of Citrix Online.

“What we’re trying to do, among other things, is build another good company in Santa Barbara,” said Michael Crandell, founder and chief executive of RightScale, which has brought on nearly 25 employees in the last year. “We hire some people remotely, but our core is local.”

Appfolio makes Web-based software for property managers who oversee 150 to 3,000 units. It’s a one-stop platform that includes accounting, inventory and other services tailored to property managers’ needs, all without the hassle of installing or maintaining software on location.

But property managers are only the first stop. Appfolio intends to find other Web-software niches where it can become the industry standard among small and medium businesses.
In April, Appfolio raised $17 million in a Series B round of funding from Cisco Systems, BV Capital and the Investment Group of Santa Barbara. The company employs about 30.

Counting a $5 million Series A round in February, Appfolio has raised $22 million in 2008, more than any other tri-county company has disclosed this year.
Also in April, RightScale raised $4.5 million in a Series A round led by Benchmark Capital.

RightScale provides a platform to help application developers take advantage of cloud computing – the vast arrays of servers maintained by Amazon Web Services and other companies.

Cloud computing makes it cheaper for upstart developers to gain a foothold because they can purchase space on Amazon’s servers instead of paying for their own hardware.

“Things are going full bore,” said Crandell. “We’ve been growing at an average of about 25 percent per month in terms of paid customers.”

Crandell said the company’s staff has grown to 32 people, up from just eight about a year ago. “We’ll probably more than double [employees] in a year,” Crandell said.

Another Santa Barbara company, EZ-Assure, makes Web software that it mates with hardware to provide better security for people and property.

In the second and third quarter it raised about $800,000 in angel money from Tech Coast Angels, the Pasadena Angels and “a few high net-worth individuals” in the Santa Barbara area, said Mike Hopkins, the firm’s chief executive.

EZ-Assure hopes to use the money to shift from development to a positive cash flow, Hopkins said. But even in its early phase, the company scored a major win in Britain.

In the aftermath of the London subway bombings of 2005, officials determined that security guards hadn’t performed their rounds. Lawmakers mandated an automated system that would double check the guards’ work.

EZ-Assure won the contract. It makes small metal buttons implanted in walls at guard checkpoints. Guards carry wands that they touch to the buttons as they make their rounds. The buttons transmit information wirelessly to EZ-Assure’s servers, which host a Web application for British transportation officials.

“Any subway station manager can watch where the security guards are going and what information the guards are putting in at the checkpoints,” Hopkins said. “They get alerts if guards are not where they’re supposed to be.”

In 2007, EZ-Assure had revenue of about $200,000. Hopkins said the company is on track to pull in $1.8 million in revenue this year.

But Web-based software isn’t the only tech business raising money in Santa Barbara. Nutricate has designed a system for restaurants and cafeterias that prints a dish’s nutritional information right along with its price on a customer’s receipt.

So far, about 20 locations nationwide feature the technology. It will soon make its debut in the cafeteria of the Centers for Disease Control’s Atlanta headquarters, where Nutricate hopes trend-setting health officials might notice the system.

Nutricate has raised about $525,000 in the second quarter, said Jay Ferro, Nutricate’s founder and chief executive.
Ferro said he will look to raise between $5 million and $10 million in capital in the fourth quarter this year.

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