Venture capital leaps to $112.2 million in Triangle

The second-quarter haul is the region's biggest since the end of 2008.

Staff WriterJuly 16, 2010 

Triangle companies that rely on venture capital feasted on more than $112.2 million in new funding in the second quarter, the most since the fourth quarter of 2008, according to a new survey.

The dozen companies that raised venture capital in the quarter are the most in three years, according to a report released today by the accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data compiled by Thomson Reuters. The latest quarterly data were supplemented by The News & Observer.

The second-quarter venture capital haul was 77 percent more than the amount raised in the first quarter and 10 percent more than a year ago.

"I think it is really a sign the markets are opening up," said Laura Hoke, a partner in PWC's Raleigh office.

Still, looking at that 2009 comparison in isolation overstates how well local companies are faring in the venture capital sweepstakes. Last year was the Triangle's worst for venture capital financing since 2004.

Dozens of young Triangle companies that are technology-rich but cash-poor rely on funding supplied by venture capitalists to conduct crucial research and development and expand their operations. The venture capitalists receive a stake in the business in exchange for their investment.

The Triangle's upswing followed the national trend. The amount of venture capital invested nationwide rose 34 percent in the second quarter compared with the first quarter.

Hoke anticipates that the local venture capital market will remain relatively strong going forward as long as the stock market remains healthy.

"If we see another slowdown in the public market, we would expect a similar decline" in the venture capital market, she said.

Clay Thorp, a general partner at Durham-based venture capital firm Hatteras Venture Partners, said much will depend on how successful the venture firms themselves are in raising new rounds of capital.

The amount of money raised by venture capital firms nationwide in the second quarter declined 49 percent compared to the first quarter, according to Thomson Reuters and the National Venture Capital Association. The $1.9 billion raised in the latest quarter was the least since 2003.

The institutional investors that venture firms rely on have allocated less money to the venture sector as their stock portfolios took a beating, Thorp said.

Compounding the problem is that the returns that the venture capital industry has delivered over the past decade have been disappointing.

Four Triangle companies raised more than $15 million in the second quarter, led by TearScience, a Morrisville medical device business, which landed $44.5 million. Also in the $15-million-plus club:

Chapel Hill's Cempra Pharmaceuticals, a drug development company, $20.5 million.

Consert, a Raleigh company that is developing "smart grid" technology, $17.7 million.

Overture Networks, a Morrisville maker of high-speed networking equipment, $17.2 million.

"The market for raising venture capital is always difficult," said Overture co-founder and CEO Jeff Reedy, whose company has raised about $60 million in venture capital money to date. "It was probably more difficult" this time around.

"I just think that the investors were looking to reduce the risk as much as possible," he said. "Conversely, they set the criteria for who they would invest in at a higher bar."

Reedy's advice to fellow entrepreneurs who are planning to raise money: Network early and often with potential investors.

"Investors are making a commitment to you," he said. "They want to get to know you as much as possible before they make that investment."

Overture started the year with about 100 employees and has added 20 more workers since then because of the company's recent infusion of cash. The company expects to add another 30 staffers by year's end.

david.ranii@newsobserver.com or 919-829-4877

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