Jeff Weiss's Arlington company got $1.25 million to promote Internet software that lets editors search instantly through archives of 500,000 photos and images for illustrations they need.
Wenli Yu's firm in Gaithersburg got $2.6 million to market high-speed communications devices that blend voice, data and video into a single transmission stream.
Netstart Inc. of Herndon raised $2 million to expand a career search site on the Internet that helps employers and job seekers find each other.
These start-up firms are among the most recent recipients of a rapidly growing stream of investment dollars being channeled into the Washington and Baltimore area by professional fund managers across the country looking for entrepreneurial enterprises on the verge of commercial takeoff.
According to a survey by the Coopers & Lybrand accounting firm, venture funds managers invested $240 million in companies in the Washington-Baltimore region in the first nine months of 1996. That is a 20 percent increase over the same period in 1995, when 36 regional companies got a total of $200 million in venture capital investments.
The venture capital scorecard has become a key economic indicator for the Washington area because it measures the ability of young firms to win the backing of investment managers in New York, Boston, Chicago and elsewhere who have billions of dollars in pension fund and foundation capital at their disposal. For a region that is trying to establish itself as a national center of high-tech commerce, this beauty contest is particularly critical.
At this point, the scorecard still sends conflicting signals about the region's technology prospects, however:
* Although the amount of capital entering the region is increasing, the total venture capital flow still significantly trails the nation's leading technology centers, such as Silicon Valley and Boston.
In the July-September period this year, venture capital companies invested $127.2 million in 16 deals in Maryland and Virginia, according to Venture One, a California-based research firm.
That total is twice what the two states received in the same period a year ago and exceeds Texas's total of $111.6 million. But it falls behind that of Massachusetts, which received $222.2 million in funding, and isn't at all close to California's $702.6 million total, Venture One reported.
* While more outside investors are scouring the Washington area for deals, others still don't see it as a hotbed of new technology.
Yale Brown, president of Intelligent Interactions Inc., an Internet software company, recently encountered an investment manager who figured a company based in a place called Alexandria, Va., couldn't possibly be in the high-tech business.
"When we first talked to one venture firm they assumed that we were farmers," Brown said. "They heard Virginia and just figured that we were selling tobacco or something." * Much of the venture funding is aimed at the Washington region's strongest technology sectors -- Internet software, advanced telecommunications equipment and biotechnology. But these technologies are evolving so rapidly that some entrepreneurs may not make it. "There's certainly a failure rate that's to be expected," said Thomas A. Smith, general partner of the Edison Venture Fund in the District, which has channeled $15 million from outside investors into the Washington and Baltimore area this year. "That's why it's a high-risk business."
One-third of the two dozen companies that received funding in the third quarter are tied to the Internet -- the global computer-based information network whose roots are in the Washington region -- and to the World Wide Web, the portion of the Internet that puts text, images and video on users' computer screens.
Intelligent Interactions has developed software that allows retailers to tailor Internet advertising to specific consumers. Using information about buyers culled from marketers, Interaction's software lets companies with Web sites figure out which customers would be interested in which products and target them with customized ads.
For instance, if you own a Mazda and logged onto the site of an auto parts maker, Interaction's software would provide you with Mazda-related ads. "I hate to mention direct mail, but this allows highly targeted direct mail on the Internet," Brown said.
The company was started in February 1995 and now has 12 employees. Though it has only four customers and does not release financial data, company officials say they hope to sell stock to the public within a year or two.
Jeff Weiss was a founder of Picture Network International in Arlington, which has created software that provides quick access to huge commercial archives of photos, clip art, illustrations, artwork and other images used in publishing.
Using its Web site, an editor can type in a name, location or even a concept like "adolescent angst" and within seconds, view copies of illustrations that match the search description. It takes a few more mouse clicks to check the price, make an order and download the image, said Weiss, Picture Network's chief financial officer.
In one of the largest venture deals on the list, investors provided $20 million to Digital City Inc. of Vienna, which is launching online services in various cities with purely local content: local chat, local sports, local news and movie listings and, naturally, local advertisements. Its first site was Washington.
"It's a mini-version of America Online, which you can access through America Online," said Rob Smith, company vice president.
It is also a subsidiary of AOL, which raised some eyebrows when the company went looking for money, Smith said. "Everyone let us in the door, but everyone then said, If you're with AOL, why won't they put up the money?' "
Smith's answer was that Digital City wanted a product with "wings of its own," which wasn't dependent for its continued life on AOL. The Tribune Co. wrote the $20 million check.
Netstart Inc. of Herndon has raised $2 million, most of it from New Enterprises Associates, a Baltimore-based venture capital firm that provided funds to Internet superstars like UUNet Technologies Inc. of Fairfax.
Netstart's two products will sound like high-tech aspirin to any company familiar with the headache of recruiting new employees. First, there is a Career Builder, a Web site where job seekers can search a database of companies looking for workers and find out choice details, such as what the company does, its history and what benefits it offers. When people see a position that looks enticing, they can send a resume and cover letter electronically.
Other software automatically routes job applications to the right places and allows electronic interaction with applicants.
"There's no paper, it's very fast and it's far cheaper than hiring a headhunter," said Rob McGovern, Netstart's 35-year-old CEO.
A second cluster of Washington area venture deals is centered on communications products and services. Global Telesystems Inc., a low-profile McLean company, got $20 million in venture funding to help it expand joint ventures in Russia, Hungary, China and elsewhere where help is needed in setting up state-of-the-art telecommunications networks. The company's largest backers are several foundations created by George Soros, the billionaire New York financier who has invested extensively in former Soviet bloc nations.
David Schaeffer formed Pathnet Inc. in Riverdale to help a group of electrical utilities, railroads and state governments cope with new federal regulations that take away a slice of the airwaves the companies use for crucial internal communications. The broadcast space has been promised to developers of new digital mobile phone services.
If Pathnet's engineering and marketing efforts are successful, the company will not only create additional transmission space for its customers, but have plenty left over to sell to long-distance companies, Schaeffer said. So far, venture firms have bet $2 million that Pathnet will succeed.
Smith's firm, Edison Venture Fund, has invested $1.3 million in Wenli Yu's Gaithersburg company, Data Labs Inc., thinking that the two-year-old start-up has a solid foothold in a new way of intermingling voice, data and video and transmitting them together over telephone networks.
Yu, who has lived in the Gaithersburg area for 17 years, had worked for most of that time at Telecommunications Techniques Corp., a Germantown technology firm. When one of his colleagues left to launch a start-up firm, Yu realized that his dream of running his own company wasn't so far-fetched. "One of the reasons this area is beginning to emerge is there are more role models out there now," Smith said. CAPTION: VENTURE CAPITAL REPORTED IN THE THIRD QUARTER Firm Industry Investor Amount reported (millions) Educational Services Institute, Arlington Skills training Summit Partners, Boston $21.0 Global Telesystems Inc., McLean International telecommunications GCC Investments Inc., Chestnut Hill, Mass. $20.0 Export Software International, Reston Software Battery Ventures, Wellesley, Mass. $4.0 Nat Systems, McLean Software tools Technology Crossover Centures, Palo Alto, Calif. $3.5 Dental Co. Inc., Baltimore Dental clinics Morgan Stanley Venture Partners, New York, N.Y. $3.0 Elder Health Inc., Columbia Health care Sprout Group, New York, N.Y. $2.1 Global Associates Ltd., Falls Church Engineering and software consulting TDH III Ltd., Rosemont, Pa. $2.0 Telecorp Holdings Corp. Inc., Arlington Mobile communications Oneliberty Ventures, Boston $2.0 Telecorp Holdings Corp. Inc., Arlington Mobile communications Northwood Ventures, Syosset, N.Y. $1.5 Netstart Inc., Herndon Employment software New Enterprise Associates, Baltimore $1.4 SOURCE: Coopers & Lybrand Venture Capital Survey CAPTION: Wenli Yu, center, with his staff at Data Labs Inc., which makes high-speed equipment that transmits voice, data and video over telephone networks. CAPTION: Wenli Yu got $2.6 million from venture capitalists to market products from his two-year-old Gaithersburg firm, Data Labs Inc.