Triangle venture funding slumps in first quarter

Four companies raise $11.8M in Triangle’s worst quarter in years April 20, 2012 

Just a few Triangle companies succeeded in raising venture capital funding in the first quarter, and collectively they didn’t raise very much.

The $11.8 million in venture capital attracted by four up-and-coming companies was the Triangle’s worst quarterly showing in more than a dozen years. The number of companies that obtained an infusion was the lowest since the third quarter of 2009, according to quarterly data being released Friday. The data are being issued by PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.

The Triangle’s venture capital tally can often fluctuate wildly from quarter to quarter because of the lack of a critical mass of businesses that are dependent on venture capital. A single big deal involving tens of millions of dollars can make an enormous difference, as can a lack of one.

Still, it’s worrisome that the Triangle has had a poor showing for two consecutive quarters. In the fourth quarter nine companies raised $31.2 million, which was less than a third of what Triangle companies raised in the second quarter of 2011.

Laura Robinette, a partner in the Raleigh office of accounting firm PricewaterhouseCoopers, had been expecting a rebound in the first quarter.

“I wasn’t expecting it to be a great quarter, but it did catch me off-guard that it wasn’t anywhere close to being great,” she said.

In the first quarter, just one of the four companies that raised funds attracted more than $1 million. Semprius, a Durham company that is building a solar panel manufacturing plant in Henderson, landed $10.5 million.

The funding downturn comes at a time when Durham and Raleigh are focused on nurturing start-ups. Already, dozens of young Triangle companies – especially in the biotechnology, medical device and information technology sectors – depend on investments by venture capital firms to hire workers, develop products and ramp up marketing. Venture capitalists acquire an ownership stake in the businesses they invest in.

The national market

Nationally, the amount of venture capital raised also declined but not as precipitously as it did in the Triangle. The $5.8 billion raised in the first quarter was off 19 percent compared to the preceding quarter. The amount invested nationwide in biotechnology – a mainstay Triangle industry – fell 43 percent.

Given that it has been taking longer and becoming more expensive for experimental drugs to win regulatory approval, some venture capital firms are questioning whether investing in the sector still makes sense, said Lister Delgado of Idea Fund Partners, a Durham venture capital firm.

The amount of capital raised by local companies also is depressed, Delgado said, because a number of venture capital funds that focus on investing across the Southeast are in fund-raising mode and have curtailed new investments. Venture capitalists don’t invest their own money; instead, they raise funds from institutional investors and wealthy individuals that they in turn plow into technology companies.

Delgado expects the Triangle venture capital market to stage a comeback when the venture capital firms are flush with new cash, but that may not happen for a year or more.

At the same time, however, Delgado sees an upsurge in startups in Durham and Raleigh.

“You see the innovation happening,” he said. “The funding isn’t happening as quickly, but the funding usually follows.”

Non-venture capital funding

The venture capital numbers shouldn’t be looked at in a vacuum, cautioned Joan Siefert Rose, president of CED, a Triangle-based support group for entrepreneurs.

“Would we like to see more VC investing? Of course we would,” Rose said. “But if you are only looking at VC investing, you’re missing a big chunk of the picture.”

The region has seen an uptick in funding by so-called angel investors, Rose said, including the formation of three angel investment groups in the last year or so: RTP Capital, Triangle Angel Partners and IMAF (Inception Micro Angel Funds) – RTP.

Angel investors are wealthy individuals, many of whom are successful entrepreneurs, that invest directly in companies. Their investments don’t show up in the venture capital totals.

“It’s not that companies aren’t getting funded,” she said, “it’s just that they aren’t getting funded by VC.”

Also, many Triangle biotech companies rely on money from corporate partners to fund development of experimental drugs. That money isn’t included in the venture capital tally either.

Robinette expects the second-quarter numbers to improve. Although she declined to provide details, she said she knows of a deal about to be completed that would by itself exceed the $11.8 million Triangle companies raised in the first quarter.

Ranii: 919-829-4877

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