LTW’s up-to-date list of all VC deals in Carolinas and Georgia: Technology startups across the Southeast probably need to consider implementing water restrictions soon, as the venture capital drought stretches into the fall.

After teasing the industry with some brief showers of money in July and August, venture capital firms reverted to the arid stance they have taken toward deals for much of the past two years, making companies feel parched once again by the end of September.

Data compiled by Local Tech Wire show 35 venture deals were completed in the Carolinas and Georgia during the third quarter, the same number as the previous three months. More early-stage financings were completed in the latest quarter, so the overall value of the deals was somewhat lower than second-quarter levels.

“It’s too early to see any trends in this market,” says Ben Brooks of Southern Capital Ventures in Raleigh. “You have pockets, with great months followed by bad months.”

Twenty-two North Carolina companies received venture investments between July and September worth more than $180 million. Venture firms invested almost $80 million in 13 Georgia firms during the period. For the second straight quarter, no South Carolina companies closed a venture deal during the quarter.

By comparison, venture firms invested $117 million in Georgia technology companies and just $74 million in their Tar Heel counterparts during the third quarter of 2001, according to the MoneyTree Survey published by PricewaterhouseCoopers.

Instability to continue

“We’re definitely seeing more stuff in the pipeline now than a year ago,” says Brent Keating, who heads the Knowledge Based Industries division of RBC Centura. “Business is still coming in waves. There’s no consistent movement.”

Brooks says he expects the venture markets to remain unstable until the stock markets show some consistent growth.

“It’s going to take some confidence in the public markets before things get going,” he says. “I’m confident, because I know what we’re invested in. But investors putting their money in the stock market don’t know what they’re getting into any more.”

Southern Capitol is reportedly close to finishing a round for e-mail services provider FullSeven Technologies, and the firm also has expressed interest in backing some area biotech companies.

Keating says he is “cautiously confident” because companies have put their financial houses in order over the past year or so are appear to be ready to expand again. RBC’s venture debt program has been very active in recent months, and the bank is seeing a lot of later-stage financings in the Atlanta market, he says.

“Companies look better to bank now that they have repositioned themselves and taken steps to decrease their infrastructure and costs,” he says.

More early-stage deals

Of the 35 third-quarter deals tracked by Local Tech Wire, eight were first-round fundings – the highest number so far this year. Fifteen were second rounds. seven were third rounds and the remainder were later-stage deals.

Top North Carolina deals in the quarter included Hatteras Networks landing $45 million in its second round, Nobex obtaining the bulk of a $35 million sixth round and Serenex and Overture Networks both closing on $15 million second rounds.

In Georgia, the top deals were Wave 7 Optics getting $15.5 million in its third round and Proxima Therapeutics landing a $14 million fifth round.

Software was by far the sector in vogue during the quarter, accounting for more than a third of the deals across the region. Telecom and biotech deals were also popular, totaling another third between them.

“Everybody’s chasing the same deals,” Keating says. “Everybody wants to fund good companies, but there are fewer of them out there right now.”