Triangle venture capital funding rebounds in third quarter

Triangle startups raised $47.4 million in venture capital in the third quarter, marking a rebound from a dismal second quarter when the region’s promising early-stage companies raised less than half that amount.

“It was a pretty good quarter for the Triangle,” said Laura Robinette, who heads the Raleigh office of giant accounting firm PricewaterhouseCoopers. “I was actually pleasantly surprised because it has been so slow this year.”

The venture capital numbers being released Friday were compiled by PricewaterhouseCoopers and the National Venture Capital Association, based on information supplied by Thomson Reuters.

The amount of venture capital raised in the third quarter is the second-best showing for the region since the beginning of 2013. Still, it’s a far cry from the recent high-water mark of $106.8 million raised in the fourth quarter of last year.

Historically, the amount of venture capital invested in Triangle companies each quarter has been erratic. A large deal or two, or the absence of major deals, can skew the numbers significantly.

Ten Triangle startups raised venture capital in the third quarter, up from eight companies that attracted funding in each of the first two quarters of 2014.

The key to the improved third-quarter numbers was, as Robinette pointed out, “three really sizable deals.”

Two Triangle companies raised $10 million each in the third quarter: Lq3 Pharmaceuticals, a spinoff from Liquidia Technologies; and medical device company Tryton Medical.

Tryton actually announced raising $20 million in funding last month, but the VC numbers collected by PricewaterhouseCoopers and the National Venture Capital Association don’t always jive with announcements for a variety of reasons. For example, companies may report the total dollars committed by investors but some of the funds might be contingent on the company achieving certain milestones.

In addition a third Triangle company, Clinverse, a Durham firm whose software is used by drug companies and contract research organizations, raised $9.1 million in the third quarter.

By contrast, the richest deal reported in the second quarter was the $7 million raised by Valencell, a Raleigh company whose technology enables wearers of headsets and armbands to accurately monitor key health data while on the go.

Startup and early-stage ventures with high-growth potential, especially information technology and biotechnology companies, often depend on venture capital dollars to further their technology or expand sales and marketing efforts. Venture capital firms receive an ownership stake in the business in exchange for the cash they provide.

Bob Creeden, a former venture capitalist and now executive director of Blackstone Entrepreneurs Network of North Carolina, a program that aims to help local entrepreneurs convert technology into fast-growing companies, said that the third-quarter results could mark a return to normalcy.

“There are a lot of great companies still out there” in the Triangle, he said.

Given the natural ebb and flow of venture capital investments, said Creeden, it’s only natural that there would be a lull in local investments earlier this year after 16 startups raised more than $100 million in the fourth quarter of 2013.

“That investment in (that) number of companies took a lot of companies looking for money off the market,” he said.

The venture capital data don’t tell the whole story of how much money is being plowed into early-stage companies because it doesn’t take into account many investments by so-called angel investors as well as government grants and awards. CED, a Triangle-based support group for entrepreneurs, recently reported that the state’s entrepreneurial companies raised $266 million from a variety of sources in the first half of this year – up 31 percent from a year earlier.

For example, Raleigh startup PrecisionHawk announced last month that it raised $10 million from investors, but that deal wasn’t included in the latest venture capital data. Founded in 2010, PrecisionHawk collects and analyzes data obtained from drones outfitted with a variety of sensors.

“I think that it is still difficult to raise seed and early-stage money here, but I am seeing more and more signs that it is happening,” Creeden said. “We’ve got a really strong angel network here.”

The upswing in the Triangle’s venture capital deals contrasted with what happened nationwide in the third quarter – dollars invested fell 27 percent in the third quarter, while the number of deals declined 9 percent.

“That makes the North Carolina numbers even more impressive,” Robinette said.