RESEARCH TRIANGLE PARK — The venture capitalists are stirring, and some new ideas are percolating.

“Innovation is back in the system again,” said Flip Gionos of Investment Partners in California in an interview with the San Jose Mercury News.

And the results are generating action in the long-morbid VC markets.
Southeast investments are slow, as Local Tech Wire’s weekly reports clearly document. Georgia deals simply have plunged. But maybe the enthusiasm returning to the national market will help spark renewed interest in our neck of the woods.

(LTW’s regional list: www.localtechwire.com/article.cfm?u=4886 )

New figures out from Ernst & Young and Venture One show that VC investing grew — that’s right, grew — 14 percent in the second quarter to $4 billion. The increase from $3.5 billion in the first quarter, is the first the VC markets have reported on a quarterly basis since the “dot com” and telecom markets blew up in 2000.

Leading the way in the upsurge was biopharmaceutical investing, which hit $745 million, up from $382 million. “All areas within biopharmaceuticals thrived, with the exception of drug delivery,” the new report says. “The principal contributors to the success of the medical devices segment were implantable therapeutic devices companies.”

Software investments jumped as well, a full 20 percent to $1 billion.

Te networking side of things continues to drag on VC markets just as the ailing California economy is dragging down the overall US marketplace. Networking investments fell to $565 million, down from $743 million.

The number of deals increased slightly to 442, up from 424 the previous quarter. The average deal size also jumped $2 million to $7.9 million.

Booming boomers

Why are life sciences so hot?

Two words: Baby boomers.

“As the baby boom generation ages, the demand for healthcare products will only increase, and the cost of those products is rising. Additionally, there are myriad opportunities surrounding innovation related to the Human Genome Project,” said Rger Savell, Metropolitan New York Venture Capital Advisory Group Leader at Ernst & Young, in a statement. “So despite the regulatory hurdles, we believe that investing in healthcare companies now makes long-term sense, and we’re encouraged by the variety of the deals we’re seeing.”

But here’s perhaps the most encouraging angle of the report: 31 percent of the life science deals were seed and first-round deals. That “should ensure healthy future deal flow,” Savell said.

That’s true. But the trend also picks up on the point made by Gianos: Innovation is showing new life.

More companies that managed to survive the stock market and VC plunge over the past three years also are getting a kick-start from investors. The E&Y/Venture One says restarts jumped to 7 percent of the investment total, up from the average 1 percent.

As for networking, tough times continue.

“The second quarter saw yet another decline in communications, driven by the dearth of money directed at fiberoptics and photonics companies,” the report says. “However, a return to normalcy in the software segment balanced out the communications drop, leaving overall IT investment unchanged at $2.3 billion.”

The initial public offering and merger-and-acquisition exit routes remained flat at 63 for the quarter. But the value of the deals is 8 percent higher than in 2002, reaching $2.7 billion, up $400 million.

The bottom line on the report: Good news for a change.

Ernst & Young: www.ey.com

Venture One: www.ventureone.com

Rick Smith is managing editor of Local Tech Wire.