Triangle companies raise $40.1 million from venture capitalists

dranii@newsobserver.comJuly 19, 2013 

Triangle startups raised $40.1 million in the second quarter -- on par with the region’s first-quarter performance but just so-so based on recent standards.

“Certainly, it’s not as good as I would have liked to have seen,” said Laura Robinette, who heads the Raleigh office of PricewaterhouseCoopers. The second-quarter results are scheduled to be released Friday by the accounting firm and the National Venture Capital Association, based on data supplied by Thomson Reuters.

The latest quarterly results were dragged down by the lack of any deals that raised $10 million or more. The pool of Triangle life science and information technology companies that rely on venture capital funding to advance their technology or ramp up their sales and marketing efforts is small enough that one big deal, or the absence of one, can skew the results significantly.

Indeed, more Triangle companies attracted funding in the second quarter than the first quarter, but they raised less money on average.

The 10 Triangle companies that attracted venture capital funding in the second quarter averaged nearly $4.1 million in funding. Just seven companies raised capital in the first quarter, but they raised an average of $5.8 million.

Still, Robinette was encouraged that half of the companies that raised money in the second quarter were classified as early-stage businesses or were raising venture capital funding for the first time. Such companies typically go back to the well after putting that capital to work and, when they do, they usually raise more capital.

Venture capitalists provide young technology companies with an infusion of cash in exchange for an ownership stake in the business, enabling them to cash out when the companies they invest in are sold or go public. Such bets are high-risk -- the venture capitalists can lose all their investment when a company goes bust -- but can produce outsized rewards if a company hits it big.

The $80.8 million raised by Triangle companies in the first half of this year is well ahead of the dismal $29.2 million in the first six months of 2012. Last year the local venture capital market improved somewhat in the second half of the year, with Triangle companies raising more than $50 million in both the third and fourth quarters.

Nationwide, 913 companies raised $6.7 billion in venture capital in the second quarter. The amount of venture capital raised increased 12 percent, while the number of companies rose 2 percent.

Collectively, startups are potent sources of new jobs; and individual startups can enjoy breakout success and build enduring enterprises. Stalwarts of the Triangle business community such as Cree, SAS and Quintiles were born and raised here.

That’s why it’s a concern that the Triangle venture capital market has been in a slump for about two years. The last truly impressive performance was the second quarter of 2011, when 10 companies raised $108.9 million.

To be sure, the venture capital market is just one sign of the health of the Triangle’s emerging companies.

For one thing, several angel capital groups have formed in the Triangle in the past few years and are investing in startups that typically haven’t developed to the point that they can attract venture capital. Investments by so-called angels, or wealthy individuals, for the most part aren’t reflected in the venture capital tallies.

In addition, “we’ve had a really good last six months...with the likes of Chimerix and LiposScience going public,” said Art Pappas, founder of Durham venture capital firm Pappas Ventures that focuses on investing in life science companies.

Chimerix and LipoScience are life science companies that were nourished by venture capital. On the IT side, ChannelAdvisor, a Morrisville company that went public last month, also was helped by venture capital.

Pappas said those IPOs could attract more out-of-state venture capitalists to consider investing in the Triangle.

The pipeline of Triangle life science companies that have matured to the point of being ready to go out and try to raise venture capital funding isn’t especially robust right now, Pappas added. But he sees some startups that have received grants from the N.C. Biotechnology Center as worth watching.

“Some of them we are paying attention to,” he said. “I think they will get to a point that they will want to speak to us (about funding) and we will eagerly want to speak to them.” Pappas is on the Biotechnology Center’s board and is a former chairman.

A noteworthy footnote about the second-quarter venture capital numbers from PricewaterhouseCoopers and the National Venture Capital Association: The tally doesn’t include the $13.1 million raised last month by medical device company NeuroTronik, which was spun out of a Chapel Hill business accelerator.

CEO Fred McCoy and Douglas Reed of Hatteras Venture Partners of Durham, the venture capital firm that led the syndicate of venture capital firms that provided the funding, speculated that the omission stems from the fact that the business is incorporated in Ireland but has a U.S. subsidiary.

Today all of the company’s eight employees are local, a group that is expected to swell to a dozen within the next year, McCoy said. But it also will be building up its Irish operations given that the company plans to conduct clinical trials and seek approval for its first device overseas in order to take advantage of what it views as a more hospitable regulatory environment.

Ranii: 919-829-4877

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