VCs take on bulge bracket banks

Venture capital seems to have a limitless imagination. It has now managed to break into the fund management industry, hereto dominated by investment banks and other institutions with seemingly endless supplies of capital. VCs have taken a liking to the market for exchange traded funds (ETFs), listed vehicles that mimic the performance of an index, such as the Dow Jones Industrial Average or the FTSE 100.

The ETF sector, which is worth nearly $500bn in the US alone, has been dominated up to now by large financial groups such as Barclays Global Investors, State Street and Merrill Lynch. But the scope of ETFs is expanding enormously as investors seek to trade ever narrower themes, such as crops, metals and commercial property. As the sector expands, start-up firms are looking to create niches and VCs are hard on their heels. Many of the deals are in the US, such as in December, when AIG Global Investment Group and Atlantic-Pacific Capital led a $56m investment in WisdomTree Investments, an ETF provider. In January, Grail Partners, whose managing partner Donald Putnam previously co-founded investment bank Putnam Lovell, led a $10m round of financing for XShares Group. The money is flowing into European-focused firms too: in January, FTVentures made a $10m equity commitment to ETF Securities Ltd, which has listed products on the London Stock Exchange, Deutsche Borse and Euronext Amsterdam.

The sector is promising, particularly in Europe where it has yet to be embraced as fully as in the US. But, as night follows day, there is already evidence of a surfeit of capital following the ETF story. AlphaShares, a California-based ETF firm says it has talked to half a dozen VC firms in the past few months about possible funding even though it has filed no ETF registrations with the SEC.

A company with no profits is one thing, but no products either? Seriously.

* There has been more mail in response to our May 15 newsletter about the dearth of women leading venture-backed companies. Philip Baddeley, of Equity Fingerprint, says his wife Julie had no problems attracting VC investment in 1984. The investors would have been well rewarded: Baddeley Associates, a Cambridge-based company supplying technical documentation and user manuals for the computer industry, sold out to CAP, a large computer services group in 1987. The sale came just five years after it was started by which time there were 50 staff, all of whom shared in the wealth created. But Mr Baddeley concedes there are few other examples. “Successful entrepreneurs are a rare breed, male or female. It is just of that breed there are fewer women so far,” he says.

The Week's Deals

Nineteen companies gained venture funding this week, eight were of undisclosed value. The deals raised a total of €15.1m, which is €1.37m on average.

FluXXion, the Netherlands-based developer of micro filtration technology, has raised €6.4m from Emerald Technology Ventures, WHEB Ventures, Capricorn Venture Partners, Koninklijke Philips Electronics and CS Hui Holdings. FluXXion’s filtration products are based on semiconductor technology originally developed by Royal Philips Electronics. Applications range from the filtration of beer to analytical liquid filtration. The company plans to use the investment to fund global expansion.

Ixico, the UK-based developer of image analysis technology for the pharmaceutical industry, has raised €3.6m from Imperial Innovations, The Capital Fund and other undisclosed investors. Ixico’s services are based on automatic and interactive image analysis technology, licensed from image analysis research groups throughout the world.

Babelgom, the Belgium-based start-up developing an online data exchange service, has raised €630k from E-merge, Resultance Consulting and Sherpa Invest. Babelgom's service allows business partners to automate electronic document exchanges such as orders, shipping notes and invoices.

Minoto Entertainment Europe, the Netherlands-based online gaming and entertainment company, has raised an undisclosed amount of funding from Lunatech Ventures. The funding will be used to accelerate the product development and expansion of the company’s main product, a tool that allows users to place bets on online games played by themselves. Monoto recently acquired photo sharing website PicServer.

Elsewhere, Chameleon BioSurfaces, the UK-based developer of polymer coatings for implantable medical devices, raised an undisclosed amount from CREATE Partners; Electronic Health Media, the UK-based provider of digital information products to the NHS, raised an undisclosed amount from Advantage Early Growth Fund; and ASAN Security Technologies, the Finland-based provider of integrated visual surveillance and recognition products, raised €500k from Finnish Industry Investment and Atine Group.

See below for a complete list of deal headlines.

Did we miss anything? If you think we have missed a deal or know of a deal that is about to close then send us your deal news.

The Week's Exits

Belgium’s second largest mobile phone operator, Mobistar has acquired 90 per cent of the share capital of Luxembourg-based VOXmobile for €80.3m ($108m). The remaining 10 per cent of the company has been retained by the company management. Voxmobile is Luxemburg’s third largest mobile phone operator with a 20 per cent market share.

Groundsure, the UK-based provider of environmental risk information services to the property market, has been acquired by Emap for up to £44m (€64.4m). GroundSure’s environmental risk reports are used by owners, buyers, sellers, developers, financiers, insurers and trustees of residential and commercial property. The company will join Emap’s B2B information business portfolio.

Hantro Products, the Finland-based provider of mobile video technology, has been acquired by US-based On2 Technologies for about €43m in cash and stock. Hantro provides video compression products for mobile, digital consumer-electronics and IPTV devices. Current customers include Nokia, Freescale, LSI, Vimicro and Sanyo.

People Moves

Asterion, the UK-based biotechnology company, has appointed Dr Kevin Bryett as chairman and Dr Raymond Barlow as chief executive, to replace David Catton and Dr Peter Grant. Dr Grant remains on the board as a non-executive director. Asterion, a University of Sheffield spin-out, is developing a range of man-made hormones that have the ability to either mimic or block the actions of the body's natural hormones to provide new therapies for metabolic, inflammatory and autoimmune disorders.

Santaris Pharma, the Denmark-based biopharmaceutical company, has appointed Dr Flemming Ørnskov, currently chief executive of Lifecycle Pharma, as its non-executive chairman. Dr Ørnskov takes over from Martien van Osch, a general partner at Forbion Capital Partners.

Elsewhere, Global Media, the Germany-based internet marketing agency, has appointed Dirk Zumbansen as chief financial officer.

Most Accessed Companies

Mirics Semiconductor, the UK-based fabless semiconductor company developing products for the mobile broadcast receiver market, has attracted a lot of attention this week. Mirics’ first product, launched last year, is a ‘poly-band’ tuner for mobile digital broadcast reception. The receiver is designed to enable designers of mobile phones, portable media players and PDAs, to easily add mobile broadcast reception to support any global standard. Mirics was set up in 2004 and is backed by Pond Venture Partners.

E-Senza Technologies, the Germany-based developer of wireless device, has also received a lot of attention recently. E-Senza has developed wireless sensing products targeted at the industrial pressure, temperature, and data sensor market. The company is backed by High Tech Gründerfonds, ERP Startfonds and private investors.

Other companies generating interest recently include Cambridge Broadband Networks, Artimi, and Everyclick.