It may be tougher to raise money for dot-com ventures than it was in the heyday of 1999 and early 2000, but investment money seems to be slowly returning to the sector, according to Davis Blaine, chairman and founder of Westlake Village-based The Mentor Group, a valuation-investment banking shop.

Last week, Blaine helped put together a $2 million private placement for West Los Angeles-based eCryp Inc., a unit of Australia-based Senetas Ltd.

The main service of eCryp is online verification of fingerprints. Users hold their index finger up to a reader. As one might judge from the name, the fingerprint is scanned and encrypted by eCryp software before being sent to a database where it’s verified or rejected.

Marketing of the system will begin later this year, with the first users likely to be employees who are traveling or working off-site and want to go online to access sensitive company databases. Other early uses will probably involve authorization of B2B credit card transactions, said Daniel McNamee, chief operating officer with eCryp.

Blaine searched high and low for the $2 million in first-round financing for eCryp, going as far as Hong Kong and the Philippines for backers. Still, he believes the investment market for such firms is loosening again.

“In April and May, nobody would finance anything,” he said. “But in June and more so in July (the venture market for Internet companies) has come back. But (investors) want to see a business plan that has a schedule for achieving profits. It’s not about just going public to get the valuation.”

With round one of financing under its belt, eCryp has lined up veteran investment banker Kevin Shultz, founder of the West Los Angeles boutique investment banking shop WestPark Capital Inc. to secure round two.

But haggling with round-two investors won’t be a cakewalk, says Blaine. With the IPO window closed for the moment, and with less money in what had been a headlong rush to finance much of anything in e-land, round-two investors know they’re holding a lot of good cards.

“They are in a very good position,” said Blaine. “And they will negotiate with that in mind.”

Now that some money is in hand, eCryp is also looking for a chief executive and has retained Los Angeles-based Korn Ferry International Inc., the executive search service outfit, to help find one.

If those best-laid plans don’t go astray, eCryp hopes to go public (issue common, registered stock) in 12 to 18 months,” said McNamee.

Meanwhile, Blaine says he is raising a $40 million to $50 million venture fund for Internet startups. “Right now I have five companies I want to invest in,” he says. “I think if we can get them off the ground, we can raise more money for them. That’s why I want to have the fund; to get them launched.”

Online Yellow Pages

With 152 employees toiling away in the Mid-Wilshire district, YellowOnline.com is another dot-com story that suggests there may be a few chapters left in the Internet investment boom.

“We are closing in on our third round of financing, which will be a $50 million private placement of preferred stock,” said Robert Davis, founder of the startup.

Davis already has two rounds of financing under his belt in the last year; his initial round was for $8 million, and a second round orchestrated by the New York-based CityLink Inc. investment shop totaled $13 million. Both were equity deals.

But the coming $50 million round promises to be the biggie. Davis said two “national” brokerages are vying for the transaction, and one prospective lead brokerage is interested in taking pre-IPO stock in the deal as part of its compensation, with an eye toward taking yellowonline.com public in about a year.

So why can yellowonline.com secure financing, when other dot-coms are shriveling on the cyber-vines? Davis says it’s because his company puts online ads where prospective customers’ eyes are most likely to be.

“Our ads are not just banner ads,” he said. “We take local ads, and we place the ads under headings where they belong. You won’t find, for example, a national airline ad under the ‘Plumbers’ section. You will find ads for plumbers there.”

By the way, Davis is something of a change from most dot-com tyros.

“What did I do before this? I sold ads for Pacific Bell Yellow Pages for 16 years,” Davis says. “That is really what I have spent my whole professional life doing. I know how to sell ads for yellow pages.”

His workforce has been drawn heavily from the Pacific Bell sales force, says Davis, who has a sales staff of 110 people and another 20 telemarketers.

Old World, New Tech

For most of the last 20 years, the domestic equity markets have outperformed most overseas markets, while exposing investors to a lot less risk in terms of business cycles, clarity in reporting standards and political uncertainty.

It has been hard to argue that the Far East or Latin America represents a nice, safe and lucrative long-term investment picture. And Europe has been a socialist haven since before World War II.

But in the last year, downtown Los Angeles-based money manager Payden & Rygel has scored a 94 percent return in its mid-cap European fund, while U.S. markets have gone wishy-washy.

The fund, properly named Payden & Rygel’s European Aggressive Growth Fund, generally invests in tech, biotech and financial stocks, which are benefiting from Europe’s growing pro-business regulatory and tax climate, as well as improved reporting standards that are reassuring investors, said Kevin Hight senior portfolio manager with Payden & Rygel.

Hight doesn’t think the promise of European equities is a one-year flash in the pan.

“What you have are developed economies, which are going through structural reforms… probably a once-in-a-lifetime opportunity,” he said. “There’s the formation of a (European) monetary union… and decreasing taxes on capital gains.”

Some Euro issues are traded on the NYSE as well, and thus fulfill U.S. standards for corporate governance and disclosure, said Hight.

“There is definitely a push (in Europe) for better disclosure,” he said, even of companies not traded on U.S. exchanges.

Contributing columnist Benjamin Mark Cole writes about the local investment community for the Los Angeles Business Journal. He can be reached at [email protected].