By COLLEEN DEBAISE And SCOTT AUSTIN
Venture capitalists are chasing after companies that develop Web-based software and digital services, looking to invest in what could turn out to be the next Facebook or Twitter, shows The Wall Street Journal's second-annual ranking of 50 promising venture-capital backed companies.
In what may be a sign of a re-inflating Web bubble, venture funding has especially been flowing to technology companies, many with an Internet and consumer focus. Even those companies in fields without a particular tech focus, such as health care or business services, have incorporated social-networking or mobile technology into their offerings or business models.
To be eligible for the ranking—compiled by research firm VentureSource, a unit of Journal owner News Corp.—companies must have received an equity round of financing in the past three years and be valued at less than $1 billion, as the aim is to identify lesser-known contenders. For that reason, a number of prominent companies, including Facebook Inc., Twitter Inc. and Groupon Inc., are excluded. Some 5,743 candidates were considered.
For the second straight year a health-care company tops the list: Castlight Health Inc., a San Francisco firm whose technology allows consumers to run side-by-side comparisons of out-of-pocket medical expenses. The three-year-old company, formerly known as Ventana Health Services Inc., was No. 14 on last year's list. It takes the top spot from Pacific Biosciences Inc., a genetic-sequencing technology company in Menlo Park, Calif., that went public in October.
Castlight, like others on the list, it is trying to modernize various aspects of health care, an area that is benefiting from federal stimulus spending. No. 18. PatientSafe Solutions Inc. has designed a patient-safety system forApple Inc.'s iPod Touch, while No. 32 Everyday Health Inc. runs a network of health websites. Castlight scored high marks for raising $80 million from some big-name investors, including Oak Investment Partners, U.S. Venture Partners and Venrock.
Many companies on the list are in the long-established IT category that venture capitalists have traditionally put their money into. For instance, the top 10 include companies that provide wireless infrastructure or data-management services. Xirrus Inc. earned the No. 2 spot. The provider of Wi-Fi technology made the cut in part because founder Dirk Gates previously took another high-tech start-up, Xircom Inc., public and then sold it to IntelCorp.
No. 3 on the list Xactly Corp., a software-as-a-service company that provides sales-compensation tools, has partnered with heavyweights Microsoft Corp., Oracle Corp. and Salesforce.com Inc., which invested in the company last June.
Several consumer Internet start-ups moved up the list, or joined it for the first time, showing the surge in valuations for anything dot-com. Among those moving up on the list: No. 8 Glam Media Inc., a publisher of lifestyle websites; No. 12 Etsy Inc., an online crafts marketplace; No. 29 Zoosk Inc., a social-dating site; and No. 31 Chegg Inc., a textbook-rental site.
Two firms that provide social-networking tools for the business world made the list. No. 26 Jive Software Inc. is backed in part by Kleiner Perkins Caufield & Byers, which has invested in Facebook and Twitter. No. 46 Yammer Inc.'s investors include Founders Fund, which bet early on Facebook, and Charles River Ventures, one of Twitter's first backers.
Some companies on last year's list performed well enough to make the cut again this year, but lost ground in the rankings relative to their peers, highlighting the competitive nature of the survey. Solar-cell producer Suniva Inc. received better scores than last year but fell to No. 38 from No. 15.
Another company, Fusion-io Inc., a Salt Lake City-based maker of flash-memory drives, raised $45 million in new funding shortly after ranking at No. 2 last year, but it's now at No. 20 as its valuation grew more slowly than others on the list. On Wednesday, Fusion-io filed for a $150 million IPO.
On Twitter, the hashtag for this project is #nextbigthing.—Riva Richmond contributed to this article.