Triangle startups raised $40 million in the third quarter – in line with the first two quarters of this year but a middling performance for the region based on historical standards.
Still, Triangle startups are on track to raise significantly more venture capital dollars than they did in 2012. Last year was the worst year for venture capital investments in the Triangle since 1997.
Over the first three quarters of this year, Triangle companies raised $120.8 million, up from $82.8 million a year ago. Moreover, significantly more companies raised money – 28 over the first three quarters of this year versus 20 a year ago.
Eleven Triangle companies attracted venture capital funding in the third quarter. The third-quarter venture capital numbers are scheduled to be released Friday by the accounting firm PricewaterhouseCoopers and the National Venture Capital Association, based on data supplied by Thomson Reuters.
Young technology companies rely on venture capital to fund research and development and upgrade sales and marketing efforts.
Laura Robinette, who heads the Raleigh office of PricewaterhouseCoopers, said she was encouraged that 6 of the 11 Triangle companies that raised venture capital in the third quarter were first-time fund-raisers. Although the amounts they raised were small by venture capital standards – ranging from $500,000 to $2.6 million – she views their initial success as auguring well for the future.
That’s because venture capitalists tend to invest in companies that have successfully raised money in the past, and subsequent rounds of funding tend to be larger.
Venture capitalists plow money into startups, especially information technology and life science companies such as medical device and drug-discovery businesses, in exchange for an ownership stake. They ultimately make money if the company is sold or goes public; they can lose most or all of their investment if the company fails.
Because the Triangle lacks a critical mass of companies that rely on venture capital, a single big deal – or the absence of one – can create huge swings in the amount of venture capital raised from one quarter to another.
In the latest quarter, Argos Therapeutics, a Durham company developing a promising treatment for kidney cancer, led Triangle companies by raising $20 million, according to the PWC/Venture Capital Association report.
However, Argos actually announced in late August that it raised $42.5 million – the most by a Triangle company this year.
Such discrepancies in the venture capital data occur occasionally given the way the numbers are tallied. For example, companies may report the total amount of dollars committed but some of that money may be contingent on achieving milestones.
Moreover, Venture capitalist John Cambier of IDEA Fund Partners in Durham contends that the venture capital numbers don’t reflect “the vibrancy of the tech sector in the Triangle.”
Without naming names, he said there are “a good number” of emerging information technology companies in the Triangle that are enjoying robust revenue growth and are in line to raise significant amounts of venture capital in the next few quarters.
“What these numbers don’t measure is the progress of the companies that haven’t raised money,” Cambier said.
Money invested in startups by so-called angel investors also aren’t included in the venture capital numbers. Several angel capital groups have formed in the Triangle in the past few years to invest in startups that, for the most part, haven’t reached the point that they can attract venture capital.
Robinette said she is encouraged that G1 Therapeutics, a Chapel Hill drug-development company, announced this week that it raised $12.5 million in venture capital.
“The fourth quarter is off to a good start,” she said.
Nationwide, venture capitalists invested $7.8 billion in the third quarter, up 12 percent from the second quarter. The number of companies that attracted venture capital funding nationwide climbed 5 percent in the quarter.