News Column

Triangle venture capital funding slumps again

July 18, 2014

By David Ranii, The News & Observer (Raleigh, N.C.)

July 18--Triangle startups raised a meager $22 million in venture capital in the latest quarter, marking the second consecutive disappointing quarter of outside funding for the area's entrepreneurial companies.

The amount of venture capital funding raised in the second quarter was the lowest in two years, according to new investment numbers scheduled for release Friday. The data were compiled by PricewaterhouseCoopers and the National Venture Capital Association, based on information supplied by Thomson Reuters.

"Stating the obvious, it wasn't a good quarter," said Laura Robinette, who heads PricewaterhouseCoopers'Raleigh office.

Eight Triangle companies raised venture capital in the second quarter, which is OK by recent standards. But the total capital raised was depressed by the fact that there were no big deals in the quarter -- that is, no company raised more than $10 million.

The Triangle's venture capital market is small enough that a huge deal or two, or the lack of such deals, can cause big fluctuations in the numbers.

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

"It's always been pretty tough to raise venture funding, especially a seed round, in North Carolina and the Southeast," said David Jones, a partner in two Triangle venture capital firms, Bull City Venture Partners and Southern Capitol Ventures. "It's always been hard and continues to be hard."

Still, he added, "I'm a great believer that great companies will always find capital." Last month, Bull City Ventures, the Triangle's newest venture capital fund, announced that it has raised $26 million to invest in technology startups.

Venture capital investments are worth watching because startup and early-stage companies, especially information technology and biotechnology companies with major growth potential, rely on venture capital dollars to expand sales and marketing efforts or develop new products. The venture capital firms receive an ownership stake in the business in exchange for the infusion of cash they provide.

However, the venture capital data don't provide a complete picture of how much money is being plowed into early-stage companies.

Joan Siefert Rose, president of entrepreneurial support group CED, said that investments by angel investors, nonprofit groups and corporations generally aren't reflected in the venture capital data. Yet today they all play a crucial role in providing funding to early-stage Triangle companies.

"I'm actually optimistic that we're starting to plant some more seeds and that we are going to see some more engagement from perhaps a wider group of investors," Rose said.

Data compiled by CED found that 150 early-stage Triangle companies attracted $369.1 million in 2013. By contrast, the venture capital survey reported that 44 Triangle companies raised $227.6 million last year.

"There is good stuff going on" in the Triangle, Robinette agreed. "You just don't see it in the numbers."

Jones, the venture capitalist, said many of the region's technology startups have a "bootstrap mentality" and choose not to raise money early on. Some of that mindset, he added, could be a product of the difficult climate for raising venture capital.

"It breeds a discipline of needing to bootstrap," he said. "So many folks just put their heads down and do it the old-fashioned way."

Nationwide, venture capital investments rose 34 percent to $13 billion in the second quarter compared with the first quarter. But that expansion is due in large part to a flurry of mega deals led by the $1.2 billion raised by a single company -- ride-sharing company Uber Technologies.

That's the largest deal reported since PricewaterhouseCoopers and the National Venture Capital Association began tracking venture capital investments in 1995.

Ranii: 919-829-4877


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Source: News & Observer (Raleigh, NC)

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