The flow of new venture capital to Triangle companies slowed to a trickle in the third quarter, with just four businesses raising a paltry $27.7 million, according to a new survey.
It was the second dismal quarter this year on the local venture capital front. In the first quarter, six Triangle companies raised $17.5 million, the lowest dollar amount in at least 10 years. The venture capital numbers are being released today by accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data compiled by Thomson Reuters.
By contrast, in the third quarter of 2008, nine Triangle companies raised $91.6 million. The quarterly record: $324.8 million in the fourth quarter of 2007.
Young information technology and biotechnology companies, in particular, rely on venture capital to finance their research and development and expansion efforts. The fact that two out of the three quarters this year have been lousy -- the exception being the second quarter, when nine companies raised $102.1 million -- isn't a good sign for the dozens of Triangle companies that depend on venture capital.
It is extremely difficult for promising companies to attract financing in the current environment, said Clay Thorp, a general partner at Durham venture capital firm Hatteras Venture Partners.
One problem is that the number of venture capital funds has declined because institutional investors such as university endowments and pension funds are plowing less money into the sector. At the same time, more companies are clamoring for venture dollars because fewer are being acquired or going public.
"There's a natural supply-and-demand gap," Thorp said.
The Triangle numbers "are consistent with what we are seeing around the country," said Laura Hoke, a partner in PricewaterhouseCoopers' Raleigh office.
Companies nationwide raised $4.8 billion in venture capital in the third quarter, down one-third from a year ago. The amount invested did increase 17 percent compared to the second quarter, however.
The big caveat about the quarterly venture capital numbers for the Triangle is that the numbers can vary widely from one quarter to the next because the region lacks the critical mass of venture-backed companies found in some regions, such as the Silicon Valley and Boston.
Better days at hand?
Indeed, the current quarter already is off to a robust start. Durham medical devices company TransEnterix recently announced that it raised $55 million -- exceeding the amount raised by all Triangle companies in the first and third quarters combined. TransEnterix plans to use the money to begin manufacturing a new surgical tool, and to more than double its local work force of 31 employees by the end of next year.
"I think it says a lot ... for North Carolina that we are still getting these large-number deals," Hoke said. "Good companies are getting deals done -- and we certainly have our share of them."
Biotech companies nationwide raised more venture capital than any other industry sector in the third quarter, accounting for 18 percent of the total. That's a plus for the Triangle. Three of the four local companies that attracted venture capital in the third quarter were biotech companies.
"We continue to see steady and robust interest" in biotech and medical device companies, Tracy Leteroff, global managing partner of private equity and venture capital at PricewaterhouseCoopers, said during a conference call. "Investment bankers in this quarter have already started to call on some of the companies that were candidates for [initial public offerings of stock] several years ago, trying to gauge their level of interest in trying the markets again this fall."
Some venture capitalists predict better times ahead.
"I think activity is going to pick up in 2010 and beyond," said Jim Feuille, general partner of Crosslink Capital in San Francisco. He said venture capitalists are gaining in confidence as the "disruption caused by the financial meltdown" fades. He anticipates that institutional investors will begin to pour more money into venture capital funds.
"That will fund the ability to do new deals," he said.
