3i in $200m funding for four US companies

SAN FRANCISCO: Venture capitalists on Monday announced $200 million in

financing for four privately-held US companies, a major commitment of funds at a

time when many observers had been expecting a continued slump.

Monday's two largest deals were led by 3i Group Plc, the publicly traded

UK-based venture financing company, and backed start-ups in sectors in which

many financiers have lost money over the past year - telecommunications and the

Internet.

A $90 million funding round, led by 3i, went to Maynard, Massachusetts-based

PhotonEx Corp., boosting the total the 2-year-old photonic systems developer for

long-haul networks has raised since its founding to $178 million.

The cash will help PhotonEx bring to market its systems, which promise to

deliver more bandwidth over longer distances on existing optical fiber for lower

cost.

PhotonEx's funding round was one of the biggest in recent weeks and came as

many analysts forecast the sagging venture market will slow even more as the

holiday season approaches.

3i also led Monday's second biggest venture deal, for Lexington,

Massachusetts-based eHealthDirect Inc., a developer of Internet-based

health-plan administration platforms.

The infusion for eHealthDirect, which is changing its name to deNovis Inc.,

totaled $43.8 million, this year's biggest venture backing in the online health

field, the company said. Its technology, now employed by Health Net Inc., aims

for paper-free health-plan administration to cut costs and resolve claims in

real time, according to the company.

The size of the deals was large by comparison with recent funding. Last week,

for example, venture commitments totaled just under $380 million, less than a

quarter of the $1.8 billion raised in the same week a year earlier.

"Venture investing has got down to the business it was in five years

ago, investing with the expectation that value will be created in the

3-to-5-year time-frame, not the 3-to-5-month time-frame," added Will

Oliver, a 3i associate director.

The next few weeks of venture funding are considered crucial for assessing

the impact of the Sept. 11 attacks on start-up funding. Many private equity

deals can take a month or more to negotiate, so any further venture capital

slowdown would emerge with a lag, industry analysts said.

Monday's third-largest venture deal totaled $36 million for Palto Alto,

California-based Danger Inc., a wireless communications service provider and

technology developer making a "hiptop" device featuring instant

messaging, email, HTML browsing, voice, information management and entertainment

applications.

Danger's funding was led by Redpoint Ventures and included InOvate

Communications Group, Diamondhead Ventures, the venture arms of Deutsche Telekom

AG and wireless operator Orange SA, and Softbank Venture Capital, a venture unit

of Japanese Internet investor Softbank Corp.

Monday's fourth major deal, for $35 million, was secured by Greenwood

Village, Colorado-based Virtela Communications Inc., a service provider for

Internet-based private networks.

Founded in April 2000, Virtela now has raised $75 million, including money

from RSA Ventures, a venture fund managed by security company RSA Security Inc.,

network equipment developer Juniper Networks Inc. and security company Symantec

Corp.

(C) Reuters Limited 2001.