Venture capital likes Md.

About $116 million was invested in companies in the state in the third quarter, a report says

October 25, 2005|By WILLIAM PATALON III | WILLIAM PATALON III,SUN REPORTER

Venture capitalists pumped more than $116 million into Maryland companies in the third quarter - a gain of 46 percent over the second quarter even as funding levels slipped nationwide - with increased investments in state-based biotechnology, medical device and health care services firms leading the advance, according to a report released yesterday.

Nationally, venture-capital investments totaled $5.26 billion in 714 companies during the third quarter - a drop from the $6.07 billion invested in 780 companies during the second quarter, according to the MoneyTree Survey by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

In Maryland, venture capitalists invested $116.22 million in 22 deals, up from the $79.59 million and 26 deals in the second quarter. In the first quarter, $53.49 million was invested in 16 companies.

The fact that Maryland isn't overly reliant on one or two high-tech niches, has a lot of government and university research, and supportive state agencies and nonprofit business groups has made it an attractive target for investors - particularly with the nationwide pall of uncertainty that followed the bursting of the dot-com bubble, experts and analysts say.

"I think this demonstrates that the Maryland technology community is quite strong," said William S. Corey Jr., a partner in the Baltimore office of PricewaterhouseCoopers and head of its technology and venture capital practices.

"There's such diversity in the technology economy, as well, [with strengths] in the life sciences and biotechnology sectors, and in information technology. It's a broad coverage area," Corey said.

Frank A. Adams, founder and managing general partner of Grotech Capital Group, a Timonium-based venture firm, said Maryland is an inviting target for investors because it has strengths in areas that are performing well.

"The Mid-Atlantic area in general - and Maryland in particular - is basically only involved in three technology areas right now: biotech, information technology, and telecom," Adams said. "Biotech and IT are both doing very nicely right now, but telecom is still in the doldrums."

Despite the increase in Maryland, investments in the Washington metropolitan area - which includes Maryland - fell to $202 million in the third quarter from $264.76 million in the second quarter.

That placed the D.C. region ninth out of 19 regions tracked by the MoneyTree survey. Silicon Valley topped the list with third-quarter venture investments totaling $2.07 billion.

In Maryland, biotechnology firms were the top recipient of venture funding in the third quarter, receiving $68.83 million, or 59.22 percent, of the total. Medical devices and equipment ranked second, with investments totaling $22 million, followed by software ($16.06 million) and health care services ($7.75 million).

Synthetic Genomics - started by human genome pioneer J. Craig Venter - landed the largest venture package: $30 million, according to MoneyTree.

Venter, famed for his role in mapping the human genome, previously founded Celera Genomics Group to sell its genomics database. When that strategy failed - the government made the data widely available - he was pushed out as chief executive officer.

Venter launched this second company with Hamilton O. Smith, a longtime colleague and Nobel Prize winner. Synthetic Genomics is working to create manmade genes that could be inserted into cells to perform specific functions - what Venter described in May as "design components of the future."

Vanda Pharmaceuticals, a second Rockville biotech, was second with $18.5 million, followed by Hillcrest Communications Inc., a Rockville-based software firm ($14.5 million); Imagimed, a Rockville medical devices company ($12 million); and Bionicare, a Sparks-based medical devices firm ($10 million).

A big increase in early-stage financing was a big bright spot for Maryland in the quarter, according to PricewaterhouseCooper's Corey. Six early-stage deals worth an aggregate $60.75 million were completed, more than eight times the $7.1 million invested in early-stage companies during the second quarter, according to MoneyTree.

Later-stage financing - a problem nationally - jumped to $41.81 million in Maryland for the third quarter, from $26.93 million in the second quarter.

Overall nationwide, a "capital gap" continues to exist, with certain companies still facing challenges in their quest for capital, Dan Janney, a managing director with Alta Partners, a San Francisco venture firm, said yesterday during a conference call on the MoneyTree survey.

Companies in the biotechnology or life sciences sectors remain among the VC favorites, as do companies involved with wireless technologies and Internet software firms creating consumer-oriented offerings.

But for firms in other niches - especially startups and early stage companies, as well as late-stage firms that in better markets might be getting ready for an initial stock offering - may find themselves tough sells. As a result, some are selling out.

"Investors are being selective," Janney said. "And you're seeing a lot of M&A," or mergers and acquisitions.

bill.patalon@baltsun.com

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