A substantial amount of (electronic) ink has been devoted in recent weeks to the venture capital industry and its multitude of supposed woes. The Financial Times asked whether Sequoia Capital’s new multiple asset fund is an ill omen for lesser-performing VC firms. A few weeks ago this newsletter followed the coverage of 3i’s exit from early-stage venture capital. Fred Wilson of Union Square Ventures in New York suggests in his blog that the industry is in need of an alternative exit opportunity apart from corporate M&A and (non-existent) public offerings. Umair Haque, writing on the Harvard Business Online site, responds to Wilson’s blog entry with a post titled 'How to fix venture capital'.

In short, the answer is ‘yes’ - the VC industry is due for repair. The moves from Sequoia and 3i, however, are part of the correction, not the sign of an industry in peril. Paul Kedrosky, author of the Infectious Greed blog, replied to Wilson’s post, writing “my worry is that [what] we’re really seeing here is the market saying venture doesn’t need to be as large an asset class any more, the companies being created and capital required don’t warrant it.’

The reason is that venture capital is really an investment philosophy, not an asset class. VC is a subset of private equity, differentiated not by the size of deals, or the financial instruments used, or even the sectors targeted. The VC model instead involves a belief in people and in innovation, and the willingness to place big bets based on those two factors.

Commensurate with that investment philosophy is a high propensity for failure, but the VC model entails a long-term outlook. The best VCs don’t offer term sheets with egregious liquidation preferences and other such short-term protections. The best VCs are investing with the belief that the investee company will change the world, and in doing so will generate stellar returns - for the company, the VC firm and firm’s LPs. Umair Haque writes that the ‘fix’ for venture capital is:

‘The same old path – which we must somehow rediscover… true, durable radical innovation, backed up by something today’s venture industry is missing in spades: a deeply felt sense of purpose; the courage, hunger, and commitment to stay the course.’

There are only so many world-changing ideas out there, unfortunately, and therein lies the dilemma for the VC industry. During the dot-com boom, new money flowed liberally into VC, in hopes of chasing the same returns the (much smaller) historical industry generated. With a limited number of truly innovative ideas, that money ended up instead funding ‘me-too’ investments in companies which had an iterative idea rather than an innovative one. Competition is good, but when markets become over-saturated with competing firms before they are properly established, things are spoilt for everybody.

The venture capital industry operates most efficiently when allocated capital is in balance with the supply of top-quality, radical ideas. For that reason, the news of 3i’s shift away from early-stage VC and of Sequoia’s diversification should be greeted as positive news. A leaner VC industry would be better positioned to make long-term bets on truly innovative companies. A return to that old VC philosophy would be a welcome ‘fix’.

Autoquake, the UK-based online car sales portal, has raised £6m (€7.6m) second round funding from Highland Capital Partners and return investor, Accel Partners. Autoquake provides an online "virtual showroom" which enables consumers to purchase automobiles at a reduced rate to traditional forecourt sales. The funding is to be used for accelerating the company's UK operations, developing service offerings and will enable the company to commence its international expansion plans.

Red Bend Software, the US-based provider of mobile software management and firmware update software for the mobile phone development market, has raised $10m (€6.4m) from Coral Capital Management and existing investors: Carmel Ventures, Greylock Partners, Pitango Venture Capital, Poalim Ventures and Infinity Venture Capital. Red Bend's software enables mobile software providers to control all software assets remotely over the software lifecycle. The funding is to be used for sales and marketing growth, to license its software for other wireless devices and to accelerate the company's research and developent programme.

Guardian Global Technology, the UK-based developer of cased-hole and production logging equipment for the oil and gas industry, has raised £5m (€6.3m) from EPI-V. Guardian Global Technology designs and manufactures specialist 'down-hole' hydrocarbon logging tools, which enable oil and gas producers to measure pressure and temperature in oil reservoirs. The funding is to be used to increase the company's market penetration, to commercialise its product portfolio and to accelerate the company's technology development.

More companies' intelligence at www.libraryhouse.net

Axiom Systems, the Uk-based provider of service fulfillment software, has been acquired by the Comptel Corporation, for £7m (€8.9m) in cash. Comptel Corporation will pay an additional purchase price if Axiom's audited net sales are more than €13.5m in 2008. The additional purchase price may vary between £4m (€5m) and £16m (€20.2m), and will comprise of cash and Comptel Corporation shares.

Zandan, the France-based provider of active end-to-end customer simulation solutions, has been acquired by Keynote Systems, for £1.6m (€2m) in shares, debt repayment and estimated restructuring costs. The deal has enabled Keynote to secure the exclusive rights to the technology that the company had previously licensed from Zandan and granted Keynote access to Zandan's customer base. Keynote intends to restructure Zandan, renaming the company Keynote France, in order to strengthen its position in the market.

More companies' intelligence at www.libraryhouse.net

Tissue Regenix, the UK-based developer of innovative tissue engineering technologies, has appointed John Samuel to the position of chairman. Prior to joining the company, Mr Samuel held the position of chief executive at Mölnlycke Health Care Group (MHCG). Before this he held senior positions at several companies, including Purewafer, Ellis & Everard and Whessoe.

Image Metrics, the US-based provider of performance-driven, facial animation solutions, has appointed Michael Starkenburg to the position of chief operating officer. Prior to joining the company , Mr Starkenburg acted as an executive advisor to technology companies and private equity firms. In addition to this, Mr Starkenburg held the position of technology partner at venture capital fund, the Sprout Group, and held senior management positions at Gemstar-TVGuide, Advantic, Outpost.com and AOL.

Scyron, the UK-based security and surveillance services company, has appointed Harry Westrop to the position of chairman. A veteran of the security industry, Mr Westrop is chairman of Abacus and Belvoir Cordials and holds the position of non-executive director at The Throgmorton Trust. Prior to this, Mr Westrop held senior positions at Norbain, and oversaw the implementation of the management buy-out, rebranding and demerger of the company, which became Upperpoint Manufacturing and Upperpoint Distribution.

More companies' intelligence at www.libraryhouse.net

HyperNumbers, the UK-based developer of Web 2.0 spreadsheet applications, has informed Library House that it will be seeking funding in May 2008. Gordon Guthrie, the chief executive and chief technology officer of HyperNumbers, told Library House that the funding would be used to to execute the company's strategy to take its product to market. Mr Guthrie also stated that he envisioned that the company would look to exit via trade sale or IPO in three to seven years.

Urotec, the Germany-based developer of tissue engineering products for the Urethra reconstruction market, has informed Library House that it intends to raise a second round of funding in 2008. Dr Gouya Ram-Liebig, co-chief executive, stated that the company would be looking to raise approximately €8m in order to complete clinical trials prior to product production in 2010. Dr Ram-Liebig also stated that the company is developing two products related to the field of Urology, and intends to complete all testing and clinical trials by Q4 2008.

More companies' intelligence at www.libraryhouse.net