Venture capital market plunges

Triangle companies seeking money to expand raised $280.9 million in venture capital last year, a 12-percent decline that ran counter to the national trend.

After a strong first half of the year, the local venture capital market dropped significantly.

"Not a good year for VC investing," said Laura Hoke, a partner in the Raleigh office of accounting firm PricewaterhouseCoopers. "I don't know any way to say it other than that."

The data are being released today by PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.

One bright spot: A total of 37 Triangle companies raised money last year, four more than in 2010. In the fourth quarter, nine companies raised $31.2 million, the worst quarter since the third quarter of 2009 and less than a third of the $108.9 million Triangle companies raised in the second quarter of 2011.

"I'm a little bit surprised," Hoke said. "I was really thinking after a slow third quarter, we would see a little bit of a rebound in the fourth quarter."

Hoke was heartened, however, that more than one-third of the companies that raised money last year were classified as startup or early-stage companies - an unusually high number. If things go well, those companies likely will be raising larger rounds of money in the future.

"Historically, a lot of the money has gone to later-stage deals," Hoke said.

There is a caveat to the fourth-quarter numbers. One company that showed up in the survey, Durham technology firm Appia (formerly PocketGear), raised money in the fourth quarter, but the amount wasn't disclosed.

North Carolina ranked 12th in the nation in the fourth quarter, and for the year, in the amount of venture capital raised.

Triangle companies account for the bulk of the money raised statewide.

Nationwide, companies raised $28.4 billion in venture capital last year, a 22-percent increase.

The venture picture locally can swing widely from quarter to quarter because of the lack of a critical mass of companies that depend on venture capital. A single big deal, or a lack of one, can make a huge difference.

Dozens of young biotechnology, medical device and information technology firms depend on venture funding to hire workers, develop products and ramp up marketing. Venture capitalists obtain an ownership stake in the businesses they invest in.

Big deals were in short supply in the fourth quarter, with all but one of the Triangle companies raising less than $6 million. The exception was TransEnterix, a Morrisville maker of surgical devices that raised $15 million.

By contrast, the biggest local deal last year was the $50 million raised by pharmaceutical startup Ascletis.

Venture capitalist Jason Caplain of Southern Capitol Ventures in Raleigh said the latest data don't really jibe with what he views as a vibrant entrepreneurial landscape in the Triangle. He questioned how well the survey captures that picture given that money companies raise from wealthy individuals, known as "angel investors," doesn't show up in the survey.

In addition, he noted, companies such as email marketing firm Bronto Software and software firm SchoolDude have built up substantial businesses from scratch without raising a dime from investors.

And software firms can do more with less these days thanks to developments such as cloud computing, which allows software companies to rent server capacity rather than making big upfront investments.