Apr. 30–Venture capital investing in Triangle companies fell during the first three months of 2003 to the lowest level in six years, providing a new answer to the question, “How bad is it?”
It’s so bad that the $31.8 million raised by 10 Triangle life science and information technology companies amounts to about half the amount raised in the first quarter of 2002.
It was also the smallest amount since the first quarter of 1997, said Jeff Barber, managing director of the Raleigh office of PricewaterhouseCoopers. The company works with Venture Economics and the National Venture Capital Association to tracks venture capital data in a quarterly MoneyTree survey.
“It’s pretty pitiful, isn’t it?” Barber said.
Beyond being a splash of cold water for the region, where two new funds and talk of more have recently sparked hope for a private-investment recovery, the dismal numbers also add evidence to the hypothesis that venture capitalists have a pack mentality.
Just as they are often accused of following each other on investments — tripping over one another to invest in the next wireless concept, for example — private investors are expected to follow the rest of the economy into a recovery.
“The big run-up in the market was led by the tech sector from 1998 to mid-2000,” Barber said. “This time around, the tech sector is not going to lead the economy back — and when you’re talking about the tech sector, you’re pretty much talking about venture capital.”
The local companies that were funded in the quarter were mostly familiar names — 5-year-old Relativity Technologies raised $2 million, and 4-year-old Arsenal Digital Solutions raised $10.5 million — indicating little action for new companies.
If there’s any consolation, it can be found in the MoneyTree survey’s national numbers, which show that it’s pretty bleak all over.
Nationally, U.S. venture capital investments fell to $3.8 billion in the first quarter from $6.5 billion during last year’s first quarter. Companies in Silicon Valley raised $1.2 billion, down from $2.1 billion.
Venture capitalists are investing less money in part because there are few opportunities for them to get a return on their investments. Typically they invest money in young companies and get their returns — ideally big ones — when the company sells its stock to the public or is acquired. These events, called exits, are scarce.
Still, investors have money to spend. In February, Intersouth Partners of Durham closed a new $205 million fund. This month, Durham’s Aurora Funds closed a $85 million fund. Two new groups — Carolina Ventures of Chapel Hill and Draper SI of Florida — are raising money for local investments.
“There’s a lot of money on the sidelines,” said Adrian Wilson, managing general partner of The Trelys Funds of Columbia, S.C., which last year closed a new $25 million fund.
Trelys recently invested in Durham’s StemCo Biomedical and TriVirix International of Chapel Hill. “I may take a counter view, but I think it’s an excellent time to have money to invest,” Wilson said.
It’s a common point made by investors who say inexpensive real estate, unemployed techies eager for paychecks, and humbled entrepreneurs make it a good time to be a venture capitalist. So far, investment levels say otherwise.
—–
To see more of The News & Observer, or to subscribe to the newspaper, go to http://www.newsobserver.com.
(c) 2003, The News & Observer, Raleigh, N.C. Distributed by Knight Ridder/Tribune Business News.
