RALEIGH … It may not be a case of good, bad and ugly, but venture capital activity across the Southeast definitely was split along good, promising and downright pitiful during the first half of 2003.
While South Carolina posted results far ahead of last year’s pace and North Carolina tracked along with 2002 figures for number of deals and dollar volume, Georgia’s drag on the region’s venture picture becomes more pronounced with each passing week.
The Peach State saw 33 venture deals in the first six months of 2002, pulling in a whopping $346 million. During the first half of this year, the state has recorded just 17 deals for about $86 million, according to data compiled by LocalTechWire. Only five deals worth $21.5 million were closed in the past three months, when the state failed to see a deal for eight straight weeks.
Meanwhile, North Carolina remains on a similar track this year as last, with 34 deals for $165 million in 2003, compared with 28 deals for $168 million during the first half of 2002, LTW figures show. And South Carolina surprisingly comes up looking the best of the lot with its four deals for about $66 million … far ahead of the $15 million raised in two deals a year ago … according to LTW data.
Across the Carolinas and Georgia, 55 technology companies have closed on $316 million in venture funding so far this year. Although the deal flow remains fairly constant from last year, when 63 took place by the end of June, the dollars being handed out pale in comparison to 2002, when the region had already topped the $500 million mark.
“People aren’t handing out the same amount of cash they have in recent years,” says Jeff Barber, who heads the North Carolina technology practice of accounting firm PricewaterhouseCoopers. “Companies are being given shorter milestones and enough money to reach them. Venture rounds now are usually enough to get someone through 12 months or so, not 18 months to two years or longer like they were a few years ago.”
More early-stage deals funded
The average deal in the Southeast this year is $5.75 million, down 31 percent from the $8.38 million raised in the average deal of early 2002.
During the second quarter, just four of 29 deals topped $10 million, led by semiconductor packaging maker Ziptronix at $13.9 million and medical device manufacturer TranS1 at $12 million.
Another factor in the smaller deal size is the rising number of early-stage deals, a departure from the last two years, when venture firms were nursing their portfolio companies through the post-bubble period and weren’t entertaining new deals. Three seed deals and 11 first-round fundings were closed in the past three months, while only five deals were third or fourth rounds.
“Some of these guys got money now, and they’re going to have to spend it,” Barber says, referring to new venture funds closed in recent months by Durham-based Intersouth Partners and Aurora Funds, the two largest venture players in North Carolina.
“I think part of our problem during the (first) quarter was that firms were out raising money and weren’t concentrating on their deals, and so the timing of things got pushed back,” he says. “I’m glad to see that we seem to be back on track for the year.”
Software in, biotech out
North Carolina rebounded from its worst quarter in more than five years to capture the lion’s share of the region’s deals and dollars in recent months. The state saw 22 venture deals worth almost $90 million this quarter.
Georgia, though, remains mired in a slump, which many observers attribute to the lack of deals being completed in the still struggling telecommunications sector. A year ago, a number of large, later-stage telecom deals drove the state’s venture numbers.
Not a single telecom deal was closed across the Southeast this quarter. Software and information technology-related services companies dominated the landscape … a return to favor after spending much of the post-bubble period in the funding woodshed … with 11 and seven deals, respectively. Biotechnology, which was last year’s darling sector, saw just four deals this quarter, as did hardware-related firms like Ziptronix.