Triangle suffers another dismal quarter for venture funding

dranii@newsobserver.comJuly 19, 2012 

Triangle startups seeking to move to the next level with an infusion of venture capital raised a paltry $17.4 million in the second quarter – the region’s third consecutive dismal performance.

The amount of funding raised by six Triangle companies outpaced the $11.8 million that four businesses attracted in the first quarter, according to new data being released Friday. But the first quarter was the worst in terms of dollars raised in more than a decade.

Moreover, the amount raised in the last three quarters combined – $60.4 million – is dwarfed by the $108.9 million raised by 10 Triangle companies in just the second quarter of 2011. The data issued Friday come from PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.

The local venture capital results can fluctuate dramatically from quarter to quarter given the lack of a critical mass of companies that rely on venture funding. A single deal involving tens of millions of dollars, or the lack of one, makes an enormous difference.

Still, the last three quarters mark the worst stretch since The News & Observer began reporting the Triangle’s quarterly numbers in 1999.

“It’s upsetting because nationwide the numbers are quite good,” said Laura Robinette, a partner in PricewaterhouseCoopers’ Raleigh office.

Nationally, venture capitalists invested $7 billion in the second quarter, up 17 percent from the first quarter.

However, Robinette said, the life sciences sector, biotechnology and medical device companies, are a mainstay of the local startup scene, and they aren’t faring nearly as well. Investments in life sciences companies nationwide fell 9 percent in terms of dollars and 6 percent based on the number of deals in the second quarter. The $679 million invested in biotech in the quarter was the lowest total since the first quarter of 2003.

The survey numbers also don’t give a complete picture, Robinette said. That’s because so-called angel investors – wealthy individuals willing to plow some of their own money into startups – are a big part of the local investment scene, but their activity isn’t accounted for in the PWC/Venture Capital Association numbers unless they invest alongside venture capital firms.

“There are so many other good things going on around here,” she said.

The difficult venture capital environment is discouraging news for startups that rely on venture capital to develop new products or expand their sales and marketing efforts. Just this week Durham business software startup EvoApp shut down its operations after trying but failing to raise new funding.

However, CEO Kip Frey said EvoApp was a victim of specific circumstances: Its technology was outflanked by competitors, and that’s why it couldn’t attract new investors.

Jimmy Rosen, a venture capitalist with Durham’s Intersouth Partners, said life sciences firms have been taking it on the chin in the wake of the recession.

Not only have the number of venture capital firms contracted, he said, but early stage life sciences firms are the riskiest investments of all because it takes years for experimental drugs to win approval and the chances of success are iffy.

Rosen said Intersouth is working on “a pretty big deal” to finance a local life sciences company, but it is taking longer to put a syndicate of investors together than it would have in the past because of the funding environment.

Nor does Rosen see that environment improving soon.

“The biggest uncertainty that is affecting almost everything (throughout the economy) is the election,” Rosen said. “It’s pretty safe to say that nothing is going to change until after the election.”

The Triangle’s second-quarter venture capital numbers come with a couple of asterisks.

Durham drug-development company Argos Therapeutics raised $25 million in venture funding in April, but the survey reports that Argos raised $5 million in the quarter.

That “makes no sense at all,” said CEO Jeff Abbey.

Argos is getting its money in two phases: $9 million in April and another $16 million in August. Because the survey is limited to cash received by the company, it would make sense for the survey to report $9 million for Argos, Abbey said, but the $5 million figure is mystifying.

Likewise, the survey reports that EvoApp raised $765,000 in the second quarter, but Frey said that his company received no cash from investors during the quarter.

Regardless, adjusting for those discrepancies wouldn’t significantly change the Triangle’s dismal funding picture.

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Ranii: 919-829-4877

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