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Local Tech Wire

RESEARCH TRIANGLE PARK, N.C. – Venture capital investing in the third quarter fell 6 percent from the previous quarter, and 2009 is shaping up as the worst year for entrepreneurs seeking investors since the 2003 hangover from the 2001-2002 “dot com” meltdown.

New figures from Dow Jones VentureSource show that venture firms invested a paltry $5.1 billion in 616 deals in the third quarter.

How bad was the quarter?

Software startups brought in $581 million through 106 deals – the lowest quarterly investment total since 1996.

In North Carolina, deal making slowed as well to around $90 million.

Dow Jones VentureSource data cited seven deals totaling $48 million. However, Local tech Wire figures include several other closings that push the number past the previous quarter’s total of some $100 million.

Deals cited by Dow Jones VentureSource:

• Micell technologies, $15 million
• Megawatt Solar, $2 million
• Chimerix, $16.3 million
• Liquidia, $7 million
• siXis, $3 million
• USHIFU, $5 million

Other closes not included in that list were:

• Nextreme Thermal, $21 million
• Viamet Pharmaceuticals, $18 million
• NanoCorp, $2.5 million
• Metabolon, $1 million
• KBI Pharmaceuticals, $9 million
• ImagineOptix, $1.4 million
• Niomarck, $7.5 million

National trends

Especially hard hit were early-stage companies. The share of first-round deals fell to 27 percent from 35 percent a year ago, and early-stage funding fell to 16 percent from 18 percent.

The overall drop of some $300 million from the second quarter was down a whopping 38 percent from the July-September time frame a year ago. The number of deals fell by 47.

At least the overall number of investments in the third quarter grew from the second quarter – up from 595.

"The slow recovery we’ve seen for venture capital has faltered. As liquidity and fundraising lag after the economic meltdown in 2008, investors have no choice but to keep a tight rein on investments until the industry is on more solid ground,” said Jessica Canning, global research director at Dow Jones VentureSource.

Even the fast-growing health sector was affected.

“Surprisingly, health care investment dropped significantly this quarter,” Canning said. “After several years of growth, 2009could end with the lowest amount invested in this space since 2000.”

The numbers aren’t likely to improve anytime soon, adds Scott Austin, editor of Dow Jones VentureWire.

"The current investment pace will likely persist right through 2010, as long as limited partners – the pension funds, university endowments and other suppliers of capital to venture firms – continue to scale back their commitment levels to venture funds,” he said. “With fewer dollars to put to work, venture firms will only invest in the most promising and capital-efficient companies going forward."

There were some bright spots, however.

“For the first time, Web 2.0 investments surpassed the software sector,” Canning noted. “Although the IT recovery has been sluggish, this quarter’s investments in the Web-heavy information services sector are nearly double the investments made in the first quarter of this year.”

Information technology investments drew the largest share of funding – $1.9 billion across 270 deals.

VCs made 184 health care related deals totaling $1.7 billion.

Overall, health care deals are down 25 percent in value from a year ago with biopharmaceutical investment falling 32 percent to $811 million in 83 deals.

Medical device makers made 77 deals worth $774 million, just off 3 percent from 2008.

Information services, including Web 2.0, brought in $627 million through 86 deals, up 13 percent from the total generated in 74 deals a year ago.

Even clean tech deals plunged. Energy and utilities investments totaled $415 million, a 70 percent collapse from 2008.

Renewable energy deals fell to 14 deals worth $343 million, a drop of 73 percent.