Despite a strong second quarter for venture capital in the Washington area — the region ranked an impressive fourth in the nation for dollars and deals — venture capitalists continue to be gun-shy about making seed and early stage investments.
More than $450 million in venture funds poured into the mid-Atlantic region during the second quarter of this year, with much of that invested in the increasingly hot biotechnology sector, according to figures released Wednesday by PricewaterhouseCooopers, the National Venture Capital Association and Thomson Financial.
But only 22.5 percent of those funds went to start-up and early stage firms; less than half the 46 percent seen during the first quarter.
“There’s definitely a gap in the market,” said Niloo Howe, managing director at the Washington-based venture firm Paladin Capital Group. The firm, with about half a billion dollars under management, invests in growing companies in the homeland security industry.
There are a host of reasons why VCs continue to invest in later stage companies, said Mark Esposito, of PricewaterhouseCoopers’ Entrepreneurial and Venture Capital Support Services group.
“There’s a perception that all the big ideas like Google aren’t out there right now,” Esposito said. “And it takes as much work on the due diligence side for a big opportunity as it does for a small opportunity. If you have a big bucket of cash to deploy, you can’t focus on the smaller deals.”
Many of today’s companies are overvalued, Esposito went on to say, and it’s getting more difficult to take a company public — meaning the payoff is smaller.
Only seven companies in the mid-Atlantic region — and 104 nationwide — went public in the second quarter.
“That’s trending below last year’s total of 219 companies [nationwide],” he said. “Which I don’t think anyone thinks was that stellar of a number anyway.”
Several of the companies that did go public in the second quarter were bioscience firms, including Rockville-based Vanda Pharmaceuticals and Baltimore-based Osiris Therapeutics, demonstrating the sector’s growing commercial viability. Biotechnology ranked No. 1 for investments in the second quarter with nearly $145 million and 13 deals, outpacing the usual front-runners – the telecommunications and software sectors. Baltimore-based CoGenesys Inc. — a spin-off of Human Genome Sciences Inc. — raked in the second-biggest local venture deal of the quarter with nearly $55 million from three investment firms.
Regional investments
» Total venture capital investments in the Mid-Atlantic region: $454.7 million
» Number of deals: 54 deals
» Biotechnology: $144.9 million, 13 deals
» Telecommunications: $144.7 million, 6 deals
» Software: $73.9 million, 17 deals
» Electronics/Instrumentation: $26.9 million, 3 deals
» IT Services: $21.8 million, 4 deals
