Venture investors put more money behind mature companies in the third quarter, carrying firms in their portfolios that might have been candidates...
Venture investors put more money behind mature companies in the third quarter, carrying firms in their portfolios that might have been candidates for initial public offerings in years past.
The trend toward later-stage investments was also seen in the life-sciences sector, which captured 30 percent of the $5.3 billion in third-quarter venture funding, according to the MoneyTree survey, being released today by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association (NVCA).
The third-quarter data follow a similar report Monday from Ernst & Young and VentureOne.
In the MoneyTree survey, Northwest companies attracted $226.9 million in venture funding during the period, putting the region sixth in the nation behind Silicon Valley, New England, the Southeast, Los Angeles/Orange County and metropolitan New York.
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Washington had 25 deals in the quarter, worth $164.7 million.
The figures don’t exactly match the Monday report because of differences in methodology. VentureOne reports funding data in the quarter in which a round closes, while MoneyTree reports partial financings in the quarter they occur.
Later-stage companies, which already have a product on the market and probably have positive cash flow, took just more than half of the venture capital distributed in the third quarter, according to the MoneyTree Survey.
John Taylor, vice president of research at NVCA, said these older businesses might have gone public when IPO markets were stronger. Now, they’re going back to their investors to “tide them over” for another year or so until market conditions improve.
That’s particularly evident in the life-sciences sector, where successful IPOs have been rare in the past year, and have typically come from biotech companies with strong pharmaceutical partnerships, said Thong Le, who manages venture investments for Washington Research Foundation Capital in Seattle.
Competition has increased for deals with expanding and later-stage life-sciences companies, which represented 35 percent and 28 percent, respectively, of all deals in the sector during the first nine months of the year.
Startups got 10 percent and early-stage companies took 27 percent.
Dan Janney, a managing director at Alta Partners, a San Francisco-based venture group that focuses on life sciences, doesn’t think investment in the industry is out of balance, however, noting that the high-risk business of drug and medical-device development takes lots of time and money.
“I think the idea of funding an early-discovery deal and being five years away from the clinic is pretty tough,” he said. It’s better to have fewer well-funded companies than “a bunch of underfunded small companies.”
Two of the four life-sciences companies funded in the third quarter were categorized as early-stage or startup: Alder Biopharmaceuticals of Bothell got $11.1 million, and Ikaria of Seattle landed $3.1 million.
Amnis of Seattle won $3 million in a later-stage round. Tessera, a Seattle medical-diagnostics maker, got $8.5 million to fund an expansion.
Donald Elmer, managing general partner with Pacific Horizon Ventures, said venture dollars are flowing to later-stage companies because they’re viewed as relatively short-term investments.
Venture funds are under pressure to turn over money quickly, in part because of competition from investment alternatives such as hedge funds.
Elmer, whose group led funding of vaccine researcher Koronis Pharmaceuticals in the second quarter, said the biotech industry could suffer from a lack of early-stage investment.
“It means that fewer companies get started,” he said. “It means that early-stage companies that are started have greater difficulty attracting the expansion capital that they need, and as a result we’re going to have fewer companies mature.”
Nationally, life-sciences companies saw venture investment hit $1.57 billion in the third quarter, a 20 percent increase from the same period in 2004.
Investment in the life-sciences sector statewide was $25.7 million during the July-September period.
That was down dramatically from the $91.3 million recorded in 2004, which was the highest third quarter for Washington life sciences since 2000.
Benjamin J. Romano: 206-464-2149 or email@example.com