Some local venture capitalists might just chalk it up to the times they are living in ”“ to learn that the best deal recently involved prostate exams.
Believe it or not, it is a good-news story both on the economic and medical front.
New York numbered among the few states to register an increase in venture capital in 2008, thanks both to a few significant life-sciences deals; as well as a continued funding for New York City”™s swath of digital marketing and technology companies, one of the few industry sectors to receive increased venture funding last year.
In the fourth quarter of 2008, New York companies raised $1.3 billion in venture capital, according to the MoneyTree survey by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), based on data from Thomson Reuters Corp.
While New York venture investment tailed off to $207 million in the fourth quarter, the 57 deals statewide tracked by the MoneyTree survey were the third highest quarterly total since 2002.
New Jersey also saw venture capital investment increase, while Connecticut put up its lowest venture capital totals in a decade.
In Westchester County, Aureon Laboratories Inc. registered the largest funding round in the fourth quarter, quietly registering $23 million in funding last November from Atlas Venture Ltd. and Sprout Group. The Yonkers-based company is developing diagnostic techniques on biopsy samples to better predict the course of diseases, focusing initially on prostate cancer.
Other deals included a $6.1 million investment in Open-Xchange Inc., a Tarrytown company developing open-source e-mail software; and $5.6 million for Portero, an Armonk-based company that runs online auction platform for luxury items.
Venture capitalists invested $28.3 billion nationally in just over 3,800 deals in 2008, down 8 percent and 4 percent respectively and marking the first decline in annual investments since 2003.
The lone industry sector to register a strong increase was so-called clean technology addressing energy and environmental products and services, with investments up by half last year. The media and information-technology services sectors also saw increases in funding, helping to drive a lift in New York”™s venture capital funding last year, one of the few areas to register an increase.
Investments in the fourth quarter of 2008 totaled $5.4 billion in nearly 820 deals, down 26 percent from the third quarter and the lowest amount of dollars invested since the first quarter of 2005.
At the same time, venture capitalists themselves raised just $3.4 billion in the fourth quarter for their investment funds, less than a third of their fundraising a year earlier.
The drop in fundraising is unsurprising, according to Mark Heesen, president of NVCA, who said that venture firms that had planned to raise a fund early this year have held back until economic conditions improve and institutional investors have confidence to recommit money to venture funds.
In advance of NVCA”™s annual conference next month in Boston, Heesen addressed the Venture Investors Association of New York State last month in New York City, focusing his remarks on whether the market is poised for a new wave of deals, or whether venture capitalists they should seek a “safe haven” for their money.
Despite the declines, venture capital observers were encouraged by seed-stage investments used to get companies started. Seed-stage investments increased 19 percent last year to $1.5 billion, the highest total seed-stage startups have captured since 2000 at the height of the high-tech bubble.
“To my surprise, expansion in late-stage deals got killed, but investment in early-stage deals and seed-stage deals stayed strong,” said Gloria Skigen, a partner with the Stamford, Conn.-based law firm Martin, Lucas & Chioffi L.L.P., who spoke this month at a panel in Stamford sponsored by the Connecticut Venture Group and the Association for Corporate Growth.
CVG is planning to hold its annual Crossroads Venture Fair May 5-6 in New Haven, Conn., with the conference typically attracting entrepreneurs and venture capitalists from New York and other parts of the Northeast. Two weeks later, the Upstate Venture Association of New York Inc. has scheduled its SmartStart Venture Forum in Albany.
