Triangle startup fundraising hits 15-year low in 2012

Triangle sees worst year for venture capital since 1997

dranii@newsobserver.comJanuary 18, 2013 


Triangle startups attracted much more venture capital over the second half of 2012, but not enough to keep it from being the worst year for fundraising since 1997.

The fourth-quarter numbers released Friday show six area companies raised a total of $53.6 million, a so-so performance by historical standards. Triangle companies also raised $53.6 million in the third quarter, well above the dismal $17.4 million raised in the second quarter and the even-more-dismal $11.8 million attracted in the first quarter. The venture capital report was compiled by accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.

Laura Robinette, who heads the Raleigh office of PricewaterhouseCoopers, called the second-half rebound encouraging.

The number of privately held local companies that rely on venture capital to fund product development or expand their workforce is small enough that a single large deal – or the lack of one – can have a big impact on the quarterly venture capital totals. That worked in the Triangle’s favor in the fourth quarter, thanks to the $28 million raised by Cardioxyl Pharmaceuticals of Chapel Hill.

“Companies are continuing to secure significant financing,” Robinette said. “I would call $28 million very significant.”

Unfortunately, not many Triangle companies raised that kind of money last year. Overall, Triangle companies raised $136.4 million last year – a little less than half the amount raised in 2011 and by far the worst year for financings in more than a dozen years.

Clay Thorp of Durham venture capital firm Hatteras Venture Partners said the down year was driven in part by the decline in the number of venture capital funds that have money to invest since the recession hit. Venture capital funds raise money from investors and then turn around and plow it into high-risk businesses in hopes of generating outsize returns.

To be sure, the venture capital data don’t capture the overall landscape for startups seeking an infusion of capital. For example, money invested by so-called angel investors isn’t included.

“I do think that North Carolina is a bit different from the rest of the country because we do have a very active angel community,” Robinette said.

Thorp, whose company focuses on investing in life science companies such as biotechnology and medical device firms, said startups have been turning to alternative sources of funding, such as federally funded Small Business Innovation Research grants and partnerships with larger companies.

‘The fittest are surviving’

“I think the entrepreneurial spirit is not going to be denied, regardless of these venture numbers,” he said. “It can be made easier or harder (to raise money) depending on the availability of capital, and right now I would say it is as hard as it can possibly be. It requires a high degree of creativity.”

Conversely, he added, the quality of Triangle startups “has gotten better and better and better. … The fittest are surviving.”

Meanwhile, the first quarter of 2013 got off to a strong start this month when Durham medical device company Tryton Medical announced that it raised $24 million.

Ranii: 919-829-4877

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