March 14, 2008

The Deal

Aperio gets $20M Series C

The rapidly growing digital medical technology market helped Aperio Technologies Inc. raise a $20 million third round to broaden its offerings beyond microscopy hardware and image management software to more sophisticated pathology tools.HLM Venture Partners of San Francisco led the round, joining fellow new investors Acadia Woods Partners and BlackRock Alternative Advisors, both of New York, and previous investors Galen Partners of New York and Advanced Technology Ventures of Palo Alto, Calif. The new round will enable the eight-year-old Vista, Calif.-based company to expand clinical sales of its proprietary digital pathology system, which consists of scanning systems and management software, and to broaden diagnostic offerings to potentially include services.Aperio markets products that streamline the creation of a digital image of a microscope slide and enable users to handle samples and create digital libraries of virtual slides for use in clinical and research settings. As adoption of its products has progressed, the company has expanded its software offerings from management products to sophisticated logarithms for diagnostics.Aperio predicts that its products will change workflow in the same way that making diagnostics portable has turned picture archiving and communication systems, or PACS, into a more than $1 billion a year market in radiology.The proliferation of digital imaging has led to the rise of specialized radiology diagnostic clinics that operate in remote locations and provide specialized services over broadband data lines, and investors see a similar trend in digital pathology."When we invested three years ago, the thought was that digital pathology had a lot of potential, but the main thing that has happened is that the sector has emerged more quickly than we expected," said Tom Rodgers, a principal with Advanced Technology Ventures, which co-led the company's $17 million Series B round in 2005. "We always thought they had the best scanning hardware, but now it is just as much about software to manage workflow and get into diagnostics."Martin Felsenthal of HLM Partners said the firm is actively investing in companies in telemedicine, taking advantage of digital technology and communications to distribute medical know-how and diagnostics. The opportunity to serve broader markets by delivering sophisticated technology to rural and remote areas always has been attractive, he said, but Aperio has advanced its products faster than expected."We have been following Aperio and the team for five years now, and have been tremendously impressed with how they have continued to meet and exceed goals," Felsenthal said. "As we have proactively looked at telemedicine and the opportunity for video conferencing and other technologies to address shortages of specialists in rural areas, they have demonstrated they have a truly differentiated product that is being rapidly adopted for multiple applications."Rodgers said the company had a breakout year in sales in 2007, bringing the total number of units sold to about 350, and he said sales of the company's hardware and software have it on a run rate to achieve better than $30 million a year. The strength of the emerging markets for more sophisticated pathology tools and the company's revenue traction allowed Aperio to land a healthy increase in valuation in the current funding, Rodgers added.The company received legal counsel on the deal from Wilson Sonsini Goodrich & Rosati PC in San Diego. John Geschke of Cooley Godward Kronish LLP in Menlo Park represented investors. Aperio used no outside financial adviser for the round. The company received legal counsel on the deal from Wilson Sonsini Goodrich & Rosati PC in San Diego. John Geschke of Cooley Godward Kronish LLP in Menlo Park represented investors.