Tech companies grab investors' attention

News & Observer
07.21.09

Tech companies grab investors' attention

The venture capital picture in the Triangle rebounded in the second quarter, with nine companies raising $102.1 million -- more than five times the amount raised in the dismal first quarter, according to a new survey.

"I just can't believe we had this strong a quarter in this economy," said Laura Hoke, a partner in the Raleigh office of PricewaterhouseCoopers. The local and national venture capital numbers were released by PricewaterhouseCoopers and the National Venture Capital Association, based on data compiled by Thomson Reuters.

By contrast, six companies raised a total of $17.5 million in the first quarter, the lowest amount in at least 10 years. During the second quarter last year, 19 local companies raised $157.8 million.

Venture capital investments in the Triangle frequently vary widely from quarter to quarter because the region lacks the critical mass of venture-backed companies found in areas such as the Silicon Valley and the greater Boston area. But dozens of Triangle companies with high-growth potential rely on venture capital to fund research and expansion.

"There is kind of a flight to quality [among] venture capital firms," said Kip Frey of Intersouth Partners, a Durham venture capital firm. "It is extremely difficult for bad deals to get financed. The deals that are on their face very backable, people are competing to get in those deals."

Hoke said the two largest deals during the quarter involved drug-development companies considered to be in the early stage of development: Cempra Pharmaceuticals of Chapel Hill raised $46 million, and Viamet Pharmaceuticals of Morrisville attracted $18 million.

"This is proof there is sizable money for new companies," Hoke said.

But even companies that raised venture capital say it's tough out there. When Cempra announced its big haul in May, CEO Prabhavathi Fernandes said "it took a little longer" to raise money than in the past.

"Investors are being more careful to look at the quality of products," she said at the time. "We were lucky because our products are very good."

Seven of the nine local companies that raised venture capital in the latest quarter were life-sciences companies -- biotechnology and medical-device firms. Nationwide, life-sciences companies accounted for 41 percent of all investment dollars, the highest percentage ever.

"It was a huge quarter for biotech, which is great for our market, because we have such a focus on biotech," Hoke said.

Nationally, venture capital investments also increased but much more modestly. The $3.7billion invested in the second quarter was up 15 percent from the first quarter.

North Carolina jumped to seventh among states in the second quarter -- up from 13th in the first quarter -- based on the amount raised. The Triangle accounted for nearly all of the venture capital raised in North Carolina in the latest quarter. A Triad biotechnology company that raised $5.2million, Piedmont Pharmaceuticals, was the only North Carolina company outside the Triangle to raise money in the quarter.