2003 2nd Half

In this issue:

New Developments
  • David A. Doctor Joins Chrysalis as Executive-in-Residence
  • Chris Torkildson Joins as Executive-in-Residence
  • Successful Great Midwest Venture Capital Conference Held in Louisville

New Investments
  • TechSkills, LLC
  • Asterand, Inc.
  • 2003 Summary of New Investments

Portfolio Company Developments
  • Confluent Technologies
  • Ygnition Networks
  • 2003 Summary of Exit Transactions

Perspective
  • "Opportunities in Healthcare Investing" - David A. Jones, Jr.


New Developments

David A. Doctor Joins Chrysalis as Executive-in-Residence

David A. Doctor, former President and CEO of Genscape, Inc., has joined Chrysalis Ventures as Executive-in-Residence. Chrysalis was an original investor in Louisville-based Genscape, the nation's leading provider of real-time power plant and transmission line utilization information to the energy industry. The company was acquired by GFI Energy Ventures in August 2003.

David has 30 years of managerial business experience, principally in the energy industry. Prior to Genscape, he served as President and CEO of Tenneco Energy Resources Corporation, a $2 billion holding company consisting of 27 corporations, hundreds of employees, and all Tenneco non-regulated energy gathering, processing, transmission, and trading businesses. Tenneco Energy had previously acquired EnTrade Corporation in 1992, a national energy marketing and trading company that David co-founded in 1984.

David is a graduate of the University of Detroit. In 1997, he joined the University of Louisville’s College of Business & Public Administration as its Bank One Entrepreneur-in-Residence where he continues as a part-time instructor of New Venture Finance and Financial Strategies. In 1990, David was recognized as a national Ernst & Young Entrepreneur of the Year award recipient.


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Chris Torkildson Joins as Executive-in-Residence

Chris Torkildson, former Chief Technology Officer of bCatalyst, Inc., has joined Chrysalis Ventures as Executive-in-Residence. Chrysalis was an original investor in Louisville-based bCatalyst, a for-profit business accelerator. At bCatalyst, Chris provided the accelerator's client companies development plan analysis, technology guidance, and product development assistance.

Chris has over thirty years of software development and networking experience. Prior to joining bCatalyst in 1999, he was Chief Operating Officer of San Francisco-based StreetFusion, a B2B exchange for financial analysts and public companies. From 1997 to 1999, he served as Vice President of Software Engineering at The SoftAd Group, an application development firm building network-based, n-tiered marketing and sales automation products. Chris also served as Vice President of Engineering at the Total Entertainment Network from the company's inception in 1995 through the development and release of the first multiplayer, low-latency online gaming network in 1997. Previously, Chris served as Director of Engineering for Cisco Systems from 1994 to 1995 where he oversaw the Network Management business unit and developed software to manage very large inter-networks. His business unit developed Cisco Works, now one of the largest network management tools in the world.

Chris received a BS from Iowa State University and is a native of Minnesota. At Chrysalis, he will be evaluating new business opportunities, helping with technical due diligence on potential investments, and working with the rest of the Chrysalis team to add value to current partner companies.


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Successful Great Midwest Venture Capital Conference Held in Louisville

The thirteenth annual Great Midwest Venture Capital Conference was held in Louisville, KY on October 22 - 23, 2003 and Chrysalis Ventures was a proud sponsor of this event.

Over 300 people from more than twenty states attended this year's event. Fifty-six venture capital and investment banking firms sent representatives to the conference while twenty-three early-stage companies from nine states were showcased.

Metro Louisville's Mayor Jerry Abramson welcomed the attendees to Louisville while David A. Jones, Co-founder and Chairman of Humana, Inc. (NYSE: HUM), and Pete Kight, Founder, Chairman, and CEO of CheckFree Corporation (NASDAQ: CKFR), were the conference's keynote speakers.

Chrysalis would like to thank our many friends and partners who served as panelists, business plan review committee judges, sponsors, etc. and who helped make this event such a great success.


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New Investments

TechSkills, LLC

In December 2003, Chrysalis Ventures led a $5.5 million Series B investment in Austin-based TechSkills, LLC. Chrysalis’ co-investors in the financing included OCA Ventures and Tobat Capital, both of which had previously invested in the company.

TechSkills provides post-secondary education and training in the U.S. The company specializes in information technology (IT) certification, Allied Health services, and business skills training. It operates over 30 Learning Centers across the country using its unique blended learning approach, the “Facilitated Learning Method.” This blended learning model combines e-learning technology with the best elements of traditional classroom-based education.

TechSkills offers over 100 courses which provide skills-based training or certification for Cisco, Microsoft, Oracle, Linux, CompTIA, the Internet, security, and other leading technologies. The company’s corporate learning solutions cater to the IT training needs of the business and military sectors. TechSkills also offers medical education programs for Allied Health services including training in medical office operations, medical transcription, and insurance coding and billing. The company has over 20,000 active students and alumni.

Chrysalis Managing Director Bob Saunders has joined TechSkills' board of directors.


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Asterand, Inc.

In November 2003, Chrysalis Ventures invested in Detroit-based Asterand, Inc. as part of a Series C Equity financing. Chrysalis’ co-investors in the financing included existing investors Fort Washington Capital Partners of Cincinnati, and Oxford Bioscience Partners of Boston which led both the company’s Series A and Series B rounds. New investors joining Chrysalis included Arboretum Ventures of Ann Arbor, Michigan and Apjohn Ventures of Kalamazoo, Michigan.

Asterand is a specialized distribution company serving the growing drug discovery market. The company was founded in 2000 by Randal Charlton, CEO, and Alan Walton, a general partner at Oxford Bioscience Partners, to address the urgent need for high quality biological information and materials by genomics and proteomics researchers. Today, Asterand operates one of the world’s largest human tissue banks for genomic and proteomic research which provides the materials and information needed to conduct research on common disease targets. The company collects material from a worldwide network of donor sites and has an extensive collection of material and data covering over 150 major disease targets, including many types of cancer, cardiovascular disease, diabetes, rheumatoid arthritis, and neurological conditions such as Alzheimer’s, schizophrenia, and bipolar disease.

Asterand’s customers include researchers at some of the world's foremost and oldest genomics, pharmaceutical, and biotech companies. The company also has established partnerships with a diverse group of hospitals and medical institutions around the world to provide human tissue samples with specific disease states for research purposes.

Chrysalis Managing Director David Jones, Jr. has joined Asterand's board of directors.


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2003 Summary of New Investments



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Portfolio Company Developments

Confluent Technologies

In November 2003, Confluent Technologies, a provider of business intelligence and knowledge management solutions, received $3.3 million in Series B financing from Chrysalis Ventures and River Cities Capital Funds of Cincinnati. River Cities Capital Funds led the round with an investment of $1.65 million. Chrysalis participated via the conversion of bridge notes valued at $1.5 million. Chrysalis also invested $2.0 million in the company in April 2002.

Confluent provides business intelligence and knowledge management solutions to financial services, education, and food service companies. The company’s technology facilitates easy navigation and graphical output of data, allowing analysis to be effectively performed instantaneously. Confluent sells its services through value-added resellers, supported by a direct sales team. The company’s services are delivered on a stand-alone basis or as a bolt-on tool to other software-based solutions.

Chrysalis Managing Director Irv Bailey is a member of Confluent's board of directors.


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Ygnition Networks

In November 2003, Seattle-based Interquest Communications, a leading provider of broadband Internet services to the multi-family real estate industry, announced that it had changed its name to Ygnition Networks. Chrysalis Ventures led the company's $5 million Series B financing in July 2003.

The name change followed the company's July acquisition of Dallas-based Broadband Now which tripled the firm's size and scope, making it the largest private provider of high-speed Internet services to the nation's apartment industry. The name change also signaled a departure from its narrow focus on multi-family high-speed Internet service to a wider focus, adding IP telephony, cable TV, and point-to-point data and Internet circuits.

Ygnition currently provides broadband services to approximately 400 apartment and condominium communities and their residents in Washington, Oregon, California, Colorado, Arizona, Utah, Illinois, Texas, and Florida. Ygnition also serves commercial customers in 10 additional states.

Chrysalis Managing Director Bob Saunders serves on Ygnition's board of directors.


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2003 Summary of Exit Transactions



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Perspective

"Opportunities in Healthcare Investing" - David A. Jones, Jr.

The U.S. healthcare system offers a cornucopia of wondrous treatments and technologies for the sick and injured. Too often, though, these solutions are delivered and financed in fragmented, inefficient, and incoherent ways that increase expenditures with little demonstrable benefit. The results of systemic incoherence include confused and frustrated patients and clinicians; preventable complications and deaths from contraindicated therapies; and cost increases that far outpace the rest of the economy.

One could well ask: Why invest amidst this confusion? The healthcare system’s flaws have many causes, most of them deeply entrenched and resistant to change. Every dollar of cost is, after all, a dollar of revenue to someone with an interest in the status quo.

Healthcare services and information technology are nevertheless an important area of investing for Chrysalis. We believe that change will come as employers and governments battle healthcare costs that make companies and our economy less competitive globally; as consumers become more active in choosing how they spend their healthcare dollars; and as new information technology and communications standards bring more transparency to the healthcare supply chain. We expect that those who pay for healthcare – government, private health plans, employers, and consumers – increasingly will demand productivity and efficacy from healthcare providers, and we are investing behind this belief.

More specifically, we are investing in services, technologies, and information that make specific parts of the healthcare system more productive. For example:

  • HealthMedia, Inc. is a marketing and communications company that helps pharmaceutical manufacturers, health plans, disease management companies, and employers guide individuals to better health through tailored programs that change behavior. By combining university-derived expertise in behavioral science with contemporary database and communications technology, HealthMedia has, for example, helped GlaxoSmithKline more than double the utilization of its smoking-cessation "patches," and Kaiser-Permanente achieve weight-loss results comparable to the most popular branded, group-therapy approach at less than 10% of the cost.

    With patients confused by the complexity of their healthcare choices, wedded to lifestyle habits that often contribute to chronic health problems, and increasingly required to pay a higher share of their healthcare costs, we expect HealthMedia's products and expertise to make its customers, and their customers, members, or employees, more effective users of healthcare.

  • Inoveon, Inc. helps physicians improve care for their diabetic patients with tools for detection, staging, and monitoring of diabetic retinopathy, which is the leading cause of blindness in the U.S. The company’s proprietary image capture and decision support tools, currently being introduced in high volume diabetes care sites in the Midwest, enable doctors to be more precise in their care for this degenerative condition, which is asymptomatic but readily treatable in its early stages.

    The incidence of diabetes is rising rapidly; indeed, the Surgeon General has termed it “epidemic.” Because all diabetics are at risk for diabetic retinopathy, clinical standards call for their eyes to be examined annually. Unfortunately less than 50% receive this essential care and, with traditional tools, such exams yield little in the way of precise, actionable information.

    In Inoveon, Chrysalis sees an opportunity to bring digital productivity to this ineffective portion of the healthcare system.


  • Asterand, Inc. operates a human tissue bank to help medical researchers discover new diagnostics and therapeutics for cancer, cardiovascular disease, Alzheimer’s, and a wide range of other important diseases. The company is responding to market demand created by the recent mapping of the human genome, which has enabled medical researchers to study the molecular basis of disease by examining differences at the cellular level between diseased and normal tissue. This in turn has created demand for highly specific tissue samples, and the associated clinical and demographic data. Asterand collects materials and information from around the world, warehouses them, and sells them to drug researchers.

    In Asterand, Chrysalis sees the opportunity to bring database, communication, and logistics capabilities together to increase productivity in the vital area of new drug discovery.


  • HCCA International, Inc. is addressing one of the healthcare system’s most acute problems – the shortage of nurses – by increasing the supply. The company recruits qualified, capable nurses from outside of the U.S., helps them through the immigration and credentialing processes, and employs them in the United States on behalf of hospital clients.

    In HCCA, Chrysalis sees an opportunity for enhanced systemic productivity for one simple reason: Without nurses to deliver healthcare technological advances to sick human beings, nothing – including visions of productivity enhancement – can work.

These investments build on learning from prior portfolio investments – from Advanced Imaging Concepts, for example, whose IMPACT.MD® imaging system has continued to bring the productivity of computerized patient records to doctors’ offices since the company was acquired by AllScripts Healthcare Solutions in 2003.

As we look ahead, we see great potential in information-based services that enable major economic actors like hospitals, governments, and health plans to improve how they manage their supply chains, or consumers to cope better with expensive, chronic needs; in publishing specialized information; and in software and related services that meet the industry’s growing demand for digital productivity. We are also alert, opportunistically, for investments beyond the reach of the coming “productivity revolution” where traditional healthcare economics hold sway – for example, where local market conditions give facilities-based services sustainable competitive advantage.

Finally, we know that there are wonderful areas in healthcare – most notably biotechnology and medical device invention – that fall beyond our current focus. We are confident that others will prosper by focusing in these areas, but have chosen to “stick to our knitting.”



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Chrysalis Ventures
101 South Fifth Street, Suite 1650
Louisville, KY 40202
(502) 583-7644 phone
(502) 583-7648 fax
Web site : www.chrysalisventures.com
E-Mail: info@chrysalisventures.com

© 2004 Chrysalis Ventures, LLC

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