Triangle venture capital funding declined in first quarter

dranii@newsobserver.comApril 18, 2013 

The amount of venture capital funding raised by Triangle startups fell in the first quarter compared to the prior quarter but was still way ahead of the abysmal performance of a year ago.

A total of seven Triangle companies attracted $40.7 million in venture capital the first three months of this year, according to data being released Friday by accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.

That’s down 24 percent from the fourth quarter, when local companies raised $53.6 million.

Still, 2013 is getting off to a much better start than last year, when four companies raised a paltry $11.8 million in the first quarter – the worst quarterly performance since The News & Observer began tracking the quarterly results in 1999.

Venture capitalist James Rosen of Durham venture capital firm Intersouth Partners cautioned against reading too much into the quarterly results. He noted that the numbers would have been very different if AgBiome, a fledgling Research Triangle Park agricultural biotechnology company that announced last week that it raised $14.5 million, had closed on its funding just a few weeks earlier.

“These numbers are always sensitive to timing,” he said.

On the other hand, Rosen was concerned that each of the companies that raised money in the first quarter previously had raised venture capital. He’d like to see more early-stage companies raising money because they represent the future.

“What we really want to see is some combination of follow-on fundings and new fundings,” Rosen said. “Because there’s no company inception here, and that’s troublesome.”

A bit of context

Emerging privately-held companies, especially information technology and biotech companies, rely on venture capital to fund product development or expand their workforce. Venture capital funds plow money they raise from investors into these companies in exchange for an ownership stake in the business.

The latest quarterly venture capital numbers should have three asterisks attached.

First, Durham medical device company Tryton Medical announced in early January that it raised $24 million in new funding, but the PricewaterhouseCoopers/National Venture Capital Association numbers only give it credit for attracting $1.3 million.

Such discrepancies can occur because of the way the numbers are tallied, said Laura Robinette, who heads the Raleigh office of PricewaterhouseCoopers. For example, she speculated, Tryton could have a $24 million commitment but initially received just $1.3 million, with the additional funds contingent on achieving future milestones.

Tryton CEO Shawn P. McCarthy couldn’t be reached for comment.

Second, Advanced Animal Diagnostics announced that it raised $6 million but is credited with raising $11.6 million in the quarter.

Intersouth participated in AAD’s latest financing and Rosen is on the company’s board of directors. He was at a loss to explain the survey’s tally, but did say that AAD received the final dollars of an earlier $11.6 million financing in November. To further complicate matters, AAD announced its latest funding earlier this month but actually completed the deal just before the first quarter ended on March 28.

Third, medical device company TearScience announced in March that it had secured up to $70 million in new funding but didn’t disclose any details on what type of funding was involved. The quarterly venture capital survey lists TearScience as raising money but leaves the amount blank.

Robinette said she is optimistic about the funding outlook for startups because nationally “the VCs are doing a lot more fundraising” and therefore have more money to invest.

Venture capital firms nationwide raised $4.1 billion from investors in the first quarter, up 22 percent from the preceding quarter, according to Thomson Reuters and the National Venture Capital Association.

“Obviously, that will trickle down in the next couple of quarters and years” to companies seeking venture capital funding, she said.

Successful initial public offerings this year by two Triangle companies – LipoScience and Chimerix – also can have a “halo effect” that helps other local companies attract attention from investors, Rosen said. That, combined with a surging stock market, augurs well for the future.

“When the public markets become healthy, the entire flow of funds becomes more healthy,” Rosen said. “You have the angels getting more active, you have the VCs participating.”

“I think we’re on an upward path,” Rosen added. “I am less pessimistic now that I was at this time last year.”

Ranii: 919-829-4877

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