The Triangle venture capital picture brightened in the fourth quarter, but it wasn't enough to prevent last year from being the worst since 2004 for up-and-coming companies seeking to attract investor dollars.
Seven Triangle companies raised $105.2 million from venture capitalists in the fourth quarter - the best quarter of the year and nearly four times the meager $27.7 million that companies attracted in the third quarter. The figures come from a report being released today by accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data compiled by Thomson Reuters.
But the numbers for the full year show that the recession took its toll.
Triangle companies raised $252.5 million last year, a 40 percent decline from 2008. That was also less than half the record $720.3 million that Triangle companies raised in 2007. Last year, 25 Triangle companies attracted venture capital funding, down from 46companies in 2008.
"I was really excited with Q4, but when you look at [all of] 2009, it's about what we expected," said Laura Hoke, a partner in the Raleigh office of PricewaterhouseCoopers. "It's in keeping with the rest of the U.S."
Venture capitalists nationwide invested $17.7 billion in emerging companies, the lowest amount since 1997 and down 37 percent from 2008.
Venture capital is the lifeblood of dozens of Triangle companies, especially young information technology and biotechnology firms. They rely on infusions of cash from venture capitalists to finance their research and development and expand their businesses.
Venture capitalists, in turn, obtain an ownership stake in the business which they can cash in on if the company is sold or goes public. Such investments fall into the high-risk-high-reward category.
North Carolina ranked eighth in the nation in the amount of venture capital raised in the fourth quarter; the state ranked 11th for the year.
Half the amount raised by Triangle companies in the latest quarter came from a single deal. Durham's TransEnterix, which is on the verge of selling a new system for non-invasive surgeries, raised $55 million. Nationwide, just five companies raised more than TransEnterix in the quarter.
"Obviously, raising $55 million in any environment is difficult," said venture capitalist Garheng Kong of Durham's Intersouth Partners, one of TransEnterix's backers. "To raise that amount of money [in the fourth quarter] was extremely difficult.
Among the other big winners: biotech company PhaseBio Pharmaceuticals, which landed $25 million; and music software firm Zenph Sound Innovations, which attracted $10.7 million.
The lifeless markets for mergers and acquisitions and initial public offerings of stock are preventing venture capitalists from cashing in on their investments. Consequently, they're devoting more time and money to companies they backed previously, said venture capitalist Steve Nelson of Wakefield Group's Triangle office. That leaves less money for new investments.
The businesses that are successfully raising money anyway, Nelson said, are those that have minimized the risk in one way or another - such as posting encouraging revenue growth or obtaining good results in clinical trials.
TransEnterix CEO Todd M. Pope said the company deliberately got an early start on fundraising - it began last January - because he and his management team knew it wouldn't be easy.
"We had heard a lot of tough stories from companies that seem to be in a good situation to raise money ... who found it to be a very challenging time," Pope said. "It took longer than we thought."
Although one quarter doesn't make a trend, Hoke said she hopes the fourth-quarter results are a sign of better times ahead.
Nelson, too, said that he thinks the worst is over - for the overall economy and for companies that rely on venture capital. But he expects that the companies seeking seed capital - "two guys or two women in a garage with a good idea" - will continue to struggle.
Pope, meanwhile, is relieved that TransEnterix won't have to raise more money any time soon.
