Venture funds look beyond social media

NEW YORK Wed May 18, 2011 7:36pm EDT

NEW YORK (Reuters) - Mobile, biotech and e-commerce all have one thing in common: they are among the next wave of start-ups that have caught the eye of venture capital.

In the past year, social media companies such as Facebook, Zynga, Groupon and LinkedIn have stolen the limelight as the fastest growing space for venture funds.

Still, they make up just one area, and even a minority percentage, of investment for a number of venture capital funds.

"Social media companies are leading the charge, capturing people's fantasy," Axel Bichara, a partner at Atlas Venture, told a panel at the Reuters Global Technology Summit Venture Capital in New York on Wednesday. "If you look at venture capital companies as a whole, it's a really broad and deep portfolio of really good companies."

Just last year, little known network storage company Isilon Systems, in which Atlas invested in 2001, was sold to EMC Corp (EMC.N) for about $2.25 billion in cash.

And Bichara predicts other innovative technology companies that Atlas has invested in such as Recorded Future, an analytics engine for events on the Web, could gain popularity over the next 18 months.

Bill Maris, managing partner at Google Ventures (GOOG.O), said two of the fund's companies are also growing rapidly: Silver Spring Networks, a smart metering company, and Dasient, a mobile anti-malware company.

Silver Spring's hardware, software, and services help customers monitor and manage their energy consumption.

Mo Koyfman, principal at Spark Capital, said the mobile platform is vastly important as it is going to be to the future of computing, including payments through smartphones.

"Lots of people in the Valley are interested in mobile, social, local, gamification. Those are interesting because you can touch a lot of people and get to scale very quickly," Maris said.

Internet companies also remain one of the lowest barriers of entry.

Saad Khan, a partner at CMEA Capital, said he believes one of their portfolio companies, Blekko, could become the third-largest search engine in a short period of time, right behind Google and Yahoo Inc (YHOO.O).

An area of investment for Silicon Valley venture capital funds that is rarely publicized is biotechnology.

"The story might be either a little more difficult to understand, or it's not as sexy in a way to talk about and doesn't touch as many consumers," Maris said.

One such company includes biotech start-up Adimab, which Google Ventures -- the corporate venture arm of Internet giant Google -- added to its portfolio in 2009.

Atlas Ventures has spent the last 20 years investing in life sciences generally, and this will remain a core focus for the fund, Bichara said.

CMEA Capital invests in about 19 companies within its life sciences portfolio.

"The opportunities in life sciences are huge, and we have continuously invested there for a long period of time."

(Editing by Steve Orlofsky)

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