Triangle startups raised $32.1 million in the first quarter, a disappointing start to the year and well below the robust numbers posted in the fourth quarter.
The amount of money raised in the latest quarter is the lowest since the second quarter of 2012, when just $17.4 million was raised by Triangle companies, according to investment numbers scheduled to be released Friday. The data were compiled by PricewaterhouseCoopers and the National Venture Capital Association, based on information supplied by Thomson Reuters.
Eight Triangle startups raised venture capital in the first quarter. By contrast, in the fourth quarter – the best quarter in 2-1/2 years – 16 companies raised more than $100 million.
Venture capital investments in the Triangle are prone to vary widely from quarter to quarter. A single huge deal, or the absence of one, can have a huge impact on the numbers.
In the fourth quarter, five companies raised $10 million or more. In the first quarter, just two Triangle companies – Viamet Pharmaceuticals and Aseptia, which does business as Wright Foods – raised that much.
Moreover, “you can’t just look at the venture capital numbers to tell the whole story” of how entrepreneurial companies are faring in the Triangle, said Laura Robinette, who heads PricewaterhouseCoopers’ Raleigh office.
Robinette pointed out that recently a flood of Triangle companies has gone public – an unprecedented seven companies had successful initial public offerings of stock last year, and three more have gone public so far in 2014. Presumably some of those companies would be raising venture capital if they had remained private.
The first quarter also was an anomaly in that Triangle biotechnology companies, usually first and foremost in the numbers, accounted for just two of the eight companies that raised money.
“I can see the positive in that,” Robinette said. “It’s nice that other industries are getting some funding, in spite of what is a tough market to raise venture capital.”
Startups with high-growth potential rely on venture capital funding to develop new products or expand their sales and marketing efforts. In exchange, the venture capitalists receive an ownership stake in the business.
The latest survey numbers come with a caveat. Raleigh-based Aseptia, which last month announced raising $18 million in funding for its innovative food-processing business, is credited in the survey with raising $11.6 million.
Such discrepancies can arise because of the way the numbers are tallied. For example, companies might report the total dollars committed, but some of the funds might be withheld until the company achieves certain milestones. The survey doesn’t tally the money until it is actually received by the company.
The data are obtained by surveying venture capital firms. Consequently, other sources of funding for startups – such as funding from wealthy individuals, known as angel investors, or from the investment arms of corporations – may not show up unless they invest along with venture capitalists.
“I don’t put a lot of stock in these numbers, because there are a lot of deals that they aren’t reporting,” said Merrette Moore, managing partner of Raleigh investment firm Lookout Capital.
Lookout Capital chipped in $8 million for Aseptia’s latest round of funding. But Lookout isn’t a traditional venture capital firm, and Moore said that some of Lookout’s past investments haven’t been reflected in the survey.
“Overall, there is money out there, but I think the players are changing,” he said.
That changing funding landscape, which includes a dearth of local venture capital firms making new investments, can make it more complicated for startups seeking funding.
“Everything is about finding the right investor at the right time,” Moore said. “The sources of capital have diffused a good bit, so I think maybe it is harder to find those folks.”
At the same time, said Moore, the Triangle isn’t exactly awash with emerging companies that are attractive investment targets.
“There are a lot of companies getting started here. There are not a lot of companies progressing to the next stage,” he said. “They are kind of dying on the vine.”
Among other issues, “there’s not a ton of experienced, early-stage management talent,” nor is there a sufficient number of top-notch sales and marketing executives for emerging companies to choose from, Moore said.