Morgenthaler Ventures Wraps Up 2006 With 3 IPOs and 2 Mega M&A Events

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Morgenthaler Ventures (http://www.morgenthaler.com/ventures), a leading, national venture-capital firm focused on both life-science and IT investments, closed out 2006 with three IPOs and two significant M&A events. Morgenthaler's major investment themes for 2006 include 'Graceful Aging,' next-generation advertising, IT consolidation and cleantech. In 2006, Morgenthaler's partners completed the first full year of its tenth fund (MP VIII, which closed in October, 2005, with total committed capital of $450 million) by investing and reserving about one-third of the fund. New investments in 2006 include three life-science companies and five IT companies.

Morgenthaler Ventures (http://www.morgenthaler.com/ventures), a leading, national venture-capital firm focused on both life-science and IT investments, closed out 2006 with three IPOs and two significant M&A events.

IPOs: Morgenthaler's Life Science Team saw two of its biotech portfolio companies, Threshold Pharmaceuticals (http://www.thresholdpharm.com) and Replidyne (http://www.replidyne.com), make initial public offerings, as did one of its device portfolio companies, Thermage (http://www.thermage.com). In addition, another medical-device company, Xtent (http://www.xtentinc.com), filed its S-1 document with the SEC in preparation for an IPO.

M&As: Avidia, a biotech portfolio company, was acquired by Amgen (http://www.amgen.com) in October for $360 million -- one of the largest biotech acquisition exits in recent years. In addition, Cortina Systems, a next-generation chip company, acquired an over $100 million revenue Intel unit producing optoelectronic components in September. Cortina is in the process of rolling up other communications chip companies and seems headed toward becoming one of the major players in its markets.

Bob Pavey, Morgenthaler's general partner, noted: "What should be clear from portfolio companies that have exited or are approaching exit is: 1) the firm's philosophy of investing steadily through good times and bad is the correct one and 2) that many of our best investments have come in areas that other investors had either written off or overlooked.

"In IT, that meant investing heavily in Internet services and digital media when it was out of favor before the recent resurgence in consumer Internet investments; in semiconductors that has meant investing in communications chips just when telecommunications investment generally was collapsing; in cleantech that has meant investing in energy-saving lighting before the implications of high-energy costs had sunk in; in biotech that has meant investing in early-stage technology when other VCs were abandoning it, and in medical devices that meant investing in drug-eluting stents when virtually everyone had concluded that the market was best tackled by large companies," Pavey continued.

Morgenthaler's Major Investment Themes

Graceful Aging

Robin Bellas, a Morgenthaler general partner in the firm's Life Science Team, said: "In our estimation, we will continue to see strong exit opportunities for life-science companies -- biotech, medical devices and also healthcare service companies. All three areas offer investors opportunities for growth that ride a major demographic trend of older people who are living longer and with higher quality lives, a trend we call 'Graceful Aging.' Such trends help make life-science companies relatively immune to down cycles in the overall economy." Bellas sees the likelihood that as many as three life-science portfolio companies will file for IPOs in 2007.

Next-Generation Advertising

Gary Little, a Morgenthaler general partner who focuses on software and Internet services, said: "2006 saw the advancement of video games and cell phones, which led to consumers spending less and less time in front of their televisions. Accordingly, companies are changing the way they advertise in order to more effectively reach key markets. Mobile and in-game marketers are able to tailor messages to a specific audience and demographic yielding more successful results and we look forward to continued growth in these emerging areas in 2007."

In May, Morgenthaler invested in a cutting-edge advertising company, IGA Worldwide (http://www.igaworldwide.com), which focuses on enabling advertisers and game publishers to tap into the in-game advertising market and reach tens of millions of avid game players. In October, Morgenthaler announced a follow-on round of investing in another next-generation advertising company, Rhythm NewMedia (http://www.rhythmnewmedia.com), which provides new revenue streams for wireless carriers and effective advertising for brands. Morgenthaler has long been an investor in next-generation advertising companies, starting with its initial investment in NexTag (http://www.nextag.com) in 1999.

IT Consolidation

Drew Lanza, a Morgenthaler general partner who concentrates on semiconductors and other component-related investments, foresees continued consolidation of the information technology business that will offer opportunities for attractive exits for venture-capital investors. "It started with the consolidation of the telecommunications carriers and is now working its way down the supply chain, where a few large suppliers in each important IT category are emerging. Combine that with new late-stage financing opportunities from hedge funds and others with a surplus of investment capital, and we're starting to see conditions that look a lot like a boom."

Cleantech

Greg Blonder, a Morgenthaler general partner who invests in cleantech projects, predicts that "cleantech, while hot, will not boil over into excessive speculation. That's because many of these projects -- like more-efficient alternative fuel production -- require so much investment that even private equity is stretched to meet its demands. Second, many solutions for saving energy are low tech -- like changes in zoning regulations and architectural design. In that regard, we have seen a dramatic shift in mindset towards energy efficiency in just the last year."

Lamina Ceramics, a New Jersey-based Morgenthaler portfolio company, signed a distribution agreement with Arrow Electronics, a preeminent electronics distributor in November. Lamina (http://www.laminaceramics.com) is the developer of economical LED lighting whose sunlight-quality brightness surpasses traditional incandescent bulbs and whose efficiency surpasses fluorescent lighting. According to Blonder, LED lighting is now on a path to virtually eliminate 80 percent of electricity consumption devoted to electric lighting. Blonder expects to make one major additional energy investment in early 2007.

Overall, Morgenthaler continued to focus on identifying disruptive and early-stage opportunities with typical investments of between $5 million to $15 million per company over several rounds. In 2006, Morgenthaler's partners completed the first full year of its tenth fund (MP VIII, which closed in October, 2005, with total committed capital of $450 million) by investing and reserving about one-third of the fund. New investments in 2006 include three life-science companies -- Catalyst Biosciences (http://www.catalystbiosciences.com); a yet-to-be-announced portfolio company developed by The Foundry, one of the premier medical-device incubators in the country (http://www.the-foundry.com); and Medior, an anti-fibrosis biotech company (http://www.mediorpharma.com). It also made new investments in IT companies, including Blue Arc (http://www.bluearc.com), IGA Worldwide (http://www.igaworldwide.com), Intelleflex (http://www.intelleflex.com), MuleSource (http://www.mulesource.com), and ZeroG (http://www.zerogwireless.com).

About Morgenthaler

Morgenthaler is a leading, national venture-capital and buyout firm with offices in Menlo Park, CA; Boston, MA; Princeton, NJ, Boulder, CO; and Cleveland, OH. Its venture-capital team focuses on life sciences and information technology. Its Internet-services investments include: NexTag, SNOCAP, Orb Networks, imeem, Digital Railroad, IGA Worldwide and Rhythm New Media. Its life-science investments include Xtent, Emphasys, Satiety, GlobeImmune, Bayhill and OncoMed. Its semiconductor and component investments include Brion, Peregrine Semiconductor, Paratek, Cortina, and Lamina Ceramics. The firm has approximately $2.5 billion under management and has funded more than 250 companies over its 38-year history. For more information on Morgenthaler portfolio companies and the firm, please visit: http://www.morgenthaler.com.

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