- The Washington Times - Wednesday, August 16, 2000

Investors are increasingly pouring money into companies that create the backbone of the Internet and make sure that it runs smoothly and quickly.

Increasing on-line traffic and the shake-out of dot-coms have shifted venture capitalists' attention to backbone companies, which are often referred to as the "pipes and plumbing" of the Internet.

Such companies raised $5.36 billion for 209 deals from venture capitalists between April and June of this year, up from $1.89 billion for 108 deals the same quarter in 1999, according to the Arlington, Va.-based National Venture Capital Association (NVCA).

Local companies in the sector raised $247.08 million in 12 deals in that same time, compared with last year's $150.75 million in four deals.

"What most venture capitalists are looking for right now in the Internet space is not so much e-commerce, but really technology, proprietary technology, because the issue now is making the Web more efficient, faster," said Charles O. Heller, senior principal at Gabriel Venture Partners in Baltimore.

Gabriel Venture Partners, a year-old fund, has invested in two Silicon Valley-based Internet backbone companies. Such companies are always good investments, Mr. Heller said, because their services are necessary.

Also, since backbone companies also make proprietary software, investing in them can be prove lucrative in the long term. "And that's much more attractive to us than an idea for another application on the Internet," Mr. Heller said.

Computer I/O Corp., a Laurel, Md.-based infrastructure company, received venture funding last year, and is now seeking more money.

"We are a software company," said Les Grinspoon, chief executive officer of Computer I/O. "We are focused on network infrastructure in both the Internet and enterprise environment."

The company makes a software product called Middleware that helps computer systems communicate with each other. The technology makes Internet audio and video streaming faster, and it makes retrieving information from computers easier.

Computer I/O, for example, allows one of its clients telecommunications equipment company Ameritech to test networks and phone systems easily.

The company has been serving its clients including Boeing Co. and several government agencies since 1986. It was funded by its executives until last year when it sought venture capital.

The partners at SpaceVest, a venture fund based in Reston, Va. decided Computer I/O was a good investment and last year gave it $3 million.

"We've made a number of investments in that sector and they range from Computer I/O, really to software for Internet infrastructure, and to equipment companies," said Richard Harris, vice president of the fund.

In the past 18 month, SpaceVest has invested in eight backbone companies.

"We are more focused on infrastructure than Internet content and e-commerce," said Mr. Harris, adding that a number of infrastructure companies recently have either gone public or been acquired by larger companies.

This "makes them possibilities for very high returns, and that makes them attractive investments," he said.

The shift of money from dot-coms to infrastructure companies began last year, said Jeanne Metzger, a spokeswoman for the NVCA.

"Infrastructure is so important because it needs to be enhanced to take the Internet into the next level," she said.

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