VC activity keeps pace despite economy, regulatory delays
Venture capital activity in Connecticut has been relatively strong in 2012 despite the economy and a longer-than-expected wait for new federal regulations that will make it easier for private companies to raise capital, analysts say.
Connecticut-based companies attracted approximately $100,805,400 in venture capital dollars through the first three quarters of 2012, which ranked Connecticut 19th in the nation, according to the quarterly MoneyTree Report, which is jointly published by PricewaterhouseCoopers (PwC) L.L.P. and the National Venture Capital Association (NVCA).
In comparison, through the first three quarters of 2011 Connecticut ranked 20th with companies attracting about $139,804,700 in venture capital investments, according to the MoneyTree data, which is provided to PwC and the NVCA by Thomson Reuters.
Relative to other states, the data show Connecticut companies — and particularly early-stage startups — are performing well, said Elizabeth “Liddy” Karter, managing director of the Connecticut office of Enhanced Capital and executive director of the East Hartford-based Crossroads Venture Group.
“One thing that’s clear is that Connecticut has improved in terms of venture capital dollars invested here relative to other states,” Karter said.
Karter said Connecticut remains fourth in the value of venture capital dollars under management.
“In terms of deal size, our average deal size is under $2 million — about $1.9 million,” Karter said, adding that the average deal size in states such as New York and Massachusetts is about $7 million.
“So we’re seeing an impact on startup funding in Connecticut because of the activities of the Connecticut legislature (through the quasi-public corporation Connecticut Innovations) and that’s very encouraging,” Karter said. “Typically the progression goes from small investments to larger, so one would hope that is what we’ll see as these companies grow.”
Nationally, venture capitalists invested $6.5 billion in 890 deals in the third quarter of 2012, compared to $7.3 billion that was invested in 935 deals a year prior, according to the MoneyTree Report.
Through the first three quarters of 2012, venture capital firms invested $20 billion into more than 2,660 deals, with PwC projecting the 2012 numbers would fall short of 2011 returns in terms of both deals and total dollars invested.
In what has been a slow year for venture capital firms, investors have bemoaned delays in the implementation of new rules governing how private corporations are permitted to raise funds.
The Jumpstart Our Business Startups (JOBS) Act, passed in the spring by Congress, calls for the lifting of a general solicitation ban that prohibits companies from advertising securities not registered with the U.S. Securities and Exchange Commission (SEC) to investors, and reduces a number of other regulatory measures in hopes of spurring investments.
However, the SEC, which is responsible for writing the actual regulations, has yet to release final versions of several rules prescribed by the JOBS Act despite a July 4 deadline imposed by Congress as part of the bill.
In testimony presented to House of Representatives Committee on Oversight in September, Rory Eakin, founder and COO of CircleUp, a San Francisco startup that helps other small businesses to raise capital, said lifting the general solicitation ban could result in tens of billions of dollars in new investments.
“Lifting the ban on general solicitation is the most important part of the JOBS Act for small businesses,” Eakin said in prepared remarks. “The ban on general solicitation creates an inefficient market for startups to raise capital.”
Rep. Jim Himes, a Greenwich Democrat who played an instrumental role in the drafting of the JOBS Act, advocated for a prudent approach.
“Whether regulations are promulgated in 90 days or 180 days is not terribly important relative to the need, when we are deregulating, for the regulatory agencies to get it right,” Himes said. “Things like crowdsourcing, like general solicitation, I think have the potential to make our capital markets stronger and more liquid, but if poorly regulated could expose a lot of Americans to danger.”