Saturday, October 18, 2008

VC investment in New England tech companies plummets in Q3

By Christopher Calnan

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Venture capital finance deals in New England tech businesses dropped at triple the rate of the national decline during the third quarter, according to a report released Saturday morning.

Investments in local VC-backed companies fell sharply — to $769.2 million during the quarter compared with $998.9 million during the year-earlier quarter — a 23 percent decline, according to data from Dow Jones VentureSource. Nationally, overall VC investment slid 7 percent to $7.37 billion versus $7.94 billion during the same period last year, the report shows.

The steeper dropoff locally was caused by a faster reaction by New England’s investors to what has become an economic and financial crisis, said Michael Greeley, president of the New England Venture Capital Association and a general partner Flybridge Capital Partners, a Boston-based VC firm. “Clearly, they’re more risk-averse,” he said. “I think it was a pretty prudent response. New England investors were able to moderate investments more quickly.”

Flybridge Capital posted six deals, the largest amount by a local firm during the quarter. Cambridge’s Flagship Ventures followed with five deals, and North Bridge Venture Partners, which operates an office in Waltham, completed four investments, according to Dow Jones.

Nationally, the three-month period was the second consecutive quarter with a decline in investment levels. Also, the volume of deals declined 13 percent to 583 during the quarter, reaching the lowest level since 2005, with IT specifically posting the fewest deals seen in a single quarter since Dow Jones began tracking the data in 2002, with only 270 deals in that sector.

Locally, the number of VC investments declined 16 percent — to 78 during the quarter compared with 93 during third quarter 2007.  The median round of financing in New England reached $7 million during the quarter, the same as last year’s third quarter.

No New England investments were included in the nation’s top 10 largest deals. The largest local deals included:
• $40 million Series C financing of Cambridge-based Link Medicine Corp.
• $40 million Series D financing of Waltham-based BG Medicine Inc.
• $32 million Series B financing of Cambridge-based Vanu Inc.
• $26 million Series D round for Cambridge-based JumpTap Inc.

Consumer services and health care, which includes biotechnology, were the only two sectors that reported increased investments locally. Health-care investments reached $418.1 million versus $344 million during third quarter 2007, a nearly 18 percent increase. However, the energy and utilities sector, which includes clean technology, posted no investments during the quarter versus $178.4 million during third quarter last year. Nationally, energy and utilities reported record investment with “renewable energy” breaking the $1 billion investment mark, the report shows.