Where has the venture capital gone in North Carolina?

Only eight deals – six in the Triangle – and some $21 million in investments in the second quarter were an improvement over the first quarter. However, even in recession investments were nearly double that amount.

New data out Friday from the Money Tree report of PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters says North Carolina shrank from a standard top 10 national ranking to 21st nationally.

Even though several local VCs and investors remain optimistic, a second report, from Dow Jones VentureSource, reported similar numbers but a higher value of nearly $40 million.

Both reports cited some different deals, which is usually the case based on reporting standards.

Even a company that has been quite successful in raising early-stage funding, Durham-based Windsor Circle, says finding funding is difficult.

“It’s tough out there right now,” Windsor Circle co-founder and Chief Executive Officer Matt Williamson said. “We found a lot of funds at the end of their current fund (and with a shorter horizon to end of fund, looking for later stage companies who would statistically be closer to an exit). We also found a number of funds out raising money right now and this not investing at all. Those who were sitting on new money could afford to be very picky b/c they were in a power position. Simple supply and demand.”

Windsor Circle is in the process of raising a $3 million round, but as the data shows finding investors isn’t easy.

“We know a lot of companies looking for cash right now,” Williamson said. “Feels like a buyers market, but that’s just part of the game.

“At the end of the day, it’s comes down to value creation. If you can figure out how to create value, the money will come.”

MoneyTree data tracked deals for:

  • Argos Therapeutics
  • Clinverse
  • eMinor
  • EvoApp (which has shut down)
  • HyperBranch Medical Technology
  • Lumena Pharmaceuticals
  • Parent Media Group
  • Virtual Race Bags

Of the deals, the latter two are based in Charlotte.

The DowJones report listed five deals, including Argos and Clinverse. However, it cited three additional investments:

  • KnowledgeTree
  • Aerial BioPharma
  • Axiel

The quarterly performance was an improvement over the seven deals and $15.3 million reported in the first quarter by Money Tree.

However, even in the recession of 2009, North Carolina produce better numbers, at least in total dollars:

  • Q1: 11 deals, $41.2 million
  • Q2: 11 deals, $85.7 million
  • Q3: 5 deals, $40.2 million
  • Q4: 10 deals, $85.4 million

National Picture – MoneyTree

Nationally, funding for startups fell 12 percent in the April-June period as venture capitalists poured less money into fewer deals than a year earlier, MoneyTree reported.

One bright spot: The number of companies getting funded in the earliest stages of development reached the highest level in more than a decade — a hopeful sign for the broader economy and an indication that investors are willing to wait for returns.

Startup investments slipped to $7 billion in the second quarter, down from $8 billion in the same period a year earlier. The companies getting funded were mainly in the software, Internet, industrial, and energy sectors. There were 898 deals completed during the quarter, down 15 percent from 1,057 a year earlier.

The report tracks four stages of venture capital funding. Depending on how far along companies are in development, they received either “seed”, “early”, “expansion” or “later-stage” funding.

Compared with the first quarter, both the amount of VC money and the number of overall deals increased. The April-June quarter saw most early-stage deals completed since the first quarter of 2001, with $2.1 billion going into 410 deals.

“That’s really the bread and butter for VCs and hopefully a harbinger for good economic news for the country overall,” said Mark Heesen, president of the NVCA. “If we’re investing in early stage, that means we have some time and money that we didn’t have in the recent past.”

Many early-stage companies don’t make it. Those that do become big job creators, he added.

Still, there are concerns among venture capitalists. Investments in the life sciences are falling. In the second quarter, venture capital firms poured $696.8 million into biotech startups, less than half of the $1.44 billion they invested a year earlier. Heesen explained that the time it takes a drug to get to market in the U.S. is getting longer —often more than 10 years. That makes funding difficult, even for patient investors.

Among the MoneyTree’s other notable items:

  • Internet companies received the second-highest level of investment in more than a decade, with $1.8 billion going into 261 deals.
  • Seed-stage companies received less than half of the funding that they did a year ago, with $199.4 million going into 63 deals. That’s down from $422.8 million going into 130 deals.
  • Three of top four deals were in the industrial and energy sectors. Electric car maker Fisker Automotive received $147.6 million, Harvest Power, a provider of organic waste management services, got $112 million and fuel cell technology company Bloom Energy, which develops small, natural-gas power generators for offices and factories, received $100 million.
  • Pinterest Inc., the popular image-sharing website, tied for third place with $100 million in funding.
  • Startups in the expansion stage received a total of $2.62 billion going into 232 deals, down from 272 deals and $2.38 billion a year ago.
  • There were 193 later-stage deals during the quarter, totaling $2.09 billion. That’s down from 274 deals and $2.97 billion in the second quarter of 2011.

 National Picture – Dow Jones

The VentureSource report said U.S.-based companies raised $8.1 billion through 863 deals.

That’s a 9 percent decline in capital and 3 three decline in deals from the same period last year.

Investment in consumer internet companies, which includes social media, entertainment and shopping aggregators, rose to $967 million raised for 134 deals during the second quarter, a 27 percent increase in capital and 14 increase increase in deals.

IT companies raised $2.4 billion for 286 deals in the second quarter, a slight change from the same period last year when $2.5 billion was put into 296 deals.

Other highlights:

  • “In healthcare, biopharmaceuticals and medical device companies saw a significant decline in investment. Health IT (see Medical Software and Information Services in spreadsheet) continues to be the only bright spot in the healthcare industry.
  • “Fewer deals and smaller deals made the second quarter the worst for investment in energy and utilities start-ups since the first quarter of 2009.
  • “Deals for business and financial services start-ups fell slightly but capital invested rose 14 percent.” 

(The AP contributed to this report.)