May 28–MORRISVILLE, N.C.–When Doug Milner began talking to venture capitalists about putting money into Ziptronix, his semiconductor technology startup, last year, he says it was like walking intothe middle of a barroom brawl.

And in the process, Milner got the venture-capital equivalent of a table smashed to bits across his back: a deal in March that collapsed at the eleventh hour.

“I was doing a check before the deal closed when one of the investors called to say `We have funding issues,'” said Milner, who declined to say which venture-capital group pulled out. “That’s not what you expect to hear from an investor. That’s what I say to them: `I have funding issues, as in I need money!'”

Despite the tough fund-raising environment, Ziptronix, which was spun out from the nonprofit Research Triangle Institute in 2000, closed a $17.4 million round of venture capital Monday.

Original Ziptronix investors RTI and Alliance Technology Ventures of Atlanta fronted the company money to keep it running while a new syndicate of venture capitalists was assembled.

Now Ziptronix, which has a novel chemical process of bonding materials, is poised to complete its manufacturing facility in Morrisville and hire a team that will design three-dimensional integrated circuits for use in the wireless telecommunications and wireless Internet industries.

Milner, the chief executive officer, said he expects the manufacturing facility, a 9,000-square-foot clean room, to be running by July 14. And he said Ziptronix will likely add about 15 employees this year, bringing its total to 41.

Participating in the round, the largest private equity investment made in a Triangle company so far this year, were RTI, Alliance Technology Ventures and Grotech Capital Group of Timonium, Md., which co-led the round with Durham’s Intersouth Partners. Research Triangle Ventures of Raleigh and MCNC Enterprise Fund also invested. It was the first investment by the new fund based in Research Triangle Park.

While the fund-raising drama was going on, Ziptronix managed to land several contracts for prototypes of the 3-D chips in addition to current orders for bonding material from customers such as Orlando, Fla.-based Sawtek, which will use Ziptronix-bonded wafers to build filters, now used in cell phones and wireless base stations, with new applications.

Joseph R. Zell, general partner at Grotech, said that although diverse applications make for a complex company that is difficult for some investors to really understand, it can also make for a generous payoff. “They have a substantial technology breakthrough with a broad application,” Zell said.

Milner said the early attention Ziptronix got for its capability made the financial hazards associated with treacherous fund-raising bearable. “We’re not just a clever twist on new technology; we’re a new technology.”

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