Unlike forecasts for continued drought conditions across the Southeast this summer, the rainmakers have started showering down venture capital here and there around the region.

Data compiled exclusively by Local Tech Wire show that 35 venture deals were completed in the Carolinas and Georgia in the second quarter, up from the 28 deals in the first three months of the year.

Also, some hefty investments made the value of the second-quarter deals about 50 percent higher than in the previous quarter.

“This clearly shows that VCs are doing deals and doing some new deals, not just follow-on rounds,” says Jeff Barber, who heads the Carolinas technology practice of PricewaterhouseCoopers. “You can’t really call the first quarter an aberration because markets were going down everywhere, but I really thought that we should have seen some improvement then. I think a lot of these deals have been in the pipeline for a while, and it’s just taking time to get them done.”

During the first quarter of the year, LTW tracked 14 venture deals in Georgia for about $150 million, another dozen in North Carolina for $53 million and two in South Carolina for $15 million.

The regional upturn may be in sharp contrast to the national scene.

The Venture Wire news service has reported that venture investments tumbled again across the country in the most recent quarter, to $5.1 billion from $6.2 billion in the first quarter. But the news service’s initial estimate of first-quarter venture activity was $5 billion, so it’s unclear how much the national picture has actually changed.

“I think each area needs to find its own bottom,” Barber says. “We seem to have worked out most of our issues in the last couple of quarters, although investing patterns are still somewhat inconsistent.”

Industry momentum seen

Nineteen Georgia companies received venture investments between April and June worth almost $200 million. Venture firms invested in 16 North Carolina firms to the tune of about $115 million. No South Carolina deals were completed in the quarter.

By comparison, venture firms invested $244 million in Georgia technology companies and $149 million in their Tar Heel counterparts during the second quarter of 2001, according to the MoneyTree Survey published by PricewaterhouseCoopers.

“It seems like things are starting to come back, but everything is moving slowly,” says Richard Maclean of Charlotte-based Frontier Capital, which did its first deal in almost a year with an April investment in Peak 10, a Web hosting and data center company.
Maclean says he lately sees “momentum on the top line” at some companies, leading him to believe that the markets are improving and people are more willing to buy technology products and services.

Bud Whitmeyer of Research Triangle Ventures in Raleigh isn’t so sure the economy is improving, especially with the markets repeatedly rocked by accounting scandals at major technology companies. The disclosures of fraud make investors even more skittish about putting money into startups.

“These deals are so fragile, much more so than they used to be,” Whitmeyer says. “It’s just very difficult to pull a deal together in this market, get the right syndicate (of venture firms) together.”

Few early-stage deals

Of the 35 second-quarter deals tracked by LTW, seven were seed or first-round investments. Another eight were second rounds, while 11 were third rounds and the rest were fourth round or later.

Nationally, Private Equity Online has reported that early-stage investments increased to 25 percent of venture deals in the quarter, up from 23 percent the previous quarter.

Both Whitmeyer and Maclean say that a steady stream of interesting business plans are once again crossing their desks, after a long period of seeing weaker ideas.

“Good companies and good management teams are getting a lot of attention,” Maclean says.

The top deals in the quarter included Movaz Networks raking in $60 million, Fleetcor Technologies raising $45 million and Pathfire landing $27 million in Georgia and Scynexis obtaining $29 million and BioStratum raising $20 million in North Carolina.

North Carolina companies engaged in life sciences research and services were the most attractive to investors during the quarter, accounting for seven deals, including the three largest. Another five deals involved information technology services companies.

In Georgia, the situation was reversed. Internet-related ventures drew six investments, followed closely by software companies with five. Only one biotech firm in the state did a venture deal during the quarter.

Barber says he expects venture activity to continue to pick up over the second half of the year, but says investors will still take their time before pulling the trigger.

“This isn’t going to be a sharp V-graph where it nose dives and then shoots back up,” he says. “It’s going to be a long, slow climb that is going to have some dips in it yet.”

See these related stories:

Carolinas, Georgia Firms on Pace for $1 Billion in VC: www.localtechwire.com/article.cfm?u=1227&k=04&l=22

N.C. Firms Bring In $168 Million in VC Through June: www.localtechwire.com/article.cfm?u=1226&k=04&l=22

Georgia Firms Draw $346 Million in VC in First Half of 2002: www.localtechwire.com/article.cfm?u=1225&k=04&l=22