Venture capitalists pull back in region

Deals valued at $132 million 46% less than in 1st quarter

August 11, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Venture capitalists in the region reduced the amount of money they invested in companies in the second quarter and saw fewer deal proposals, according to a survey released yesterday by the Mid-Atlantic Venture Association.

Despite the pullback, venture capitalists remain optimistic about the health of the private equity market and about opportunities to profit as companies "exit" their portfolios by going public or merging, the survey said.

"I am encouraged by the fact that the VC [venture capital] sentiment on the investment climate is improving," said Julia Spicer, executive director of Timonium-based Mid-Atlantic Venture Association, which represents 130 venture capital firms based in Maryland, Washington and Virginia as well as companies that invest here. "Certainly, VCs feel positive about the market and the expanding exit opportunities on the horizon."

The investment market has struggled since the heady days in 2000 when area venture capitalists pumped billions of dollars into companies.

In the second quarter, venture capitalists in Maryland, Virginia, Washington and West Virginia invested $132 million in 43 deals, down from the $244 million invested in 42 deals in the first three months of the year, according to a MoneyTree survey by PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association cited by the regional group.

"This is a quarter, and a quarter is not a trend," Spicer said. "VCs tend to be cautious in this market."

Spicer said it was too early to tell why venture investment slipped, but speculated that deals may have been smaller and competition stiffer.

Also, some companies financed by area venture capitalists either went public or were acquired, cutting into the time venture capitalists had to look at other investment opportunities, she said. Those included the initial public offering of Washington-based Blackboard Inc., an educational software provider; the $230 million acquisition of Matrics Inc., a Rockville technology company; and America Online Inc.'s $435 million purchase of Advertising.com in Locust Point.

The Mid-Atlantic Venture survey, which seeks to gauge the attitudes of the venture community, also revealed that the percentage of venture firms receiving 100 or more proposals a month declined in the quarter from the prior quarter.

Yet, some encouraging trends appeared. More than 35 percent of the respondents said the quantity and quality of deal flow had increased in the past year, while 28.3 percent said quantity had fallen but quality was up. And 52.1 percent said the Mid-Atlantic region is beginning to see an "upswing" in private equity investment.

"When we back a company, and we have done a bunch of deals lately, they are good companies," said Jack Biddle, general partner at Novak Biddle Venture Partners, a Bethesda venture capital firm. "I think the region looks pretty healthy. I think you will continue to see the region gain share nationally."

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