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Venture Investing in Region's Start-Up Firms Falls to 7-Year Low

By Terence O'Hara
Washington Post Staff Writer
Monday, August 2, 2004; Page E09

Venture investing is picking up nationwide, but not here.

Start-up firms in the Washington area received $132.4 million collectively from venture investors in the three months ended June 30. It was the lowest level since 1997 and well below the heady days of 2000, when area firms raised a record $5.7 billion. This was during a quarter when venture financing nationally rose to its highest level in two years.

Disclosed Second-Quarter Venture Capital Deals for Washington Area Companies
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The number of deals locally was up slightly from previous quarters. There were 43 deals in the second quarter, compared with 42 deals in the first quarter, when $244.3 million was invested in Washington area companies, according to data provided by the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association's MoneyTree survey, which tabulates venture activity each quarter.

The largest area deal in the second quarter was the $16.9 million expansion financing for Lumenos Inc., an Alexandria online administrator of consumer-directed health care benefits programs. Lumenos actually received two rounds of financing in the second quarter, for a total of $26.9 million, from venture firms Galen Associates, Liberty Partners, AIG Capital Partners and Draper Fisher Jurvetson.

Cory Starr, a partner at PricewaterhouseCoopers who heads that firm's Washington area technology, entertainment and media practice, said the region's venture investors remain "cautiously optimistic." He said he does not see any signs venture investing will pick up significantly before the end of the year.

Starr added that he was encouraged, however, by the increasing number of early-stage investments and by the diverse mix of industries represented in the D.C. area. The firms that received money were mostly in the biotech and software sectors, but there were health care and industrial companies, too.

"You see a nice dispersion among different industries," Starr said. "I think that's good. It shows the strength of the region as a whole."

About 36 percent of the second-quarter deals were early-stage investments, compared with 18 percent of the deals in the first quarter this year. Starr credited the Maryland and Virginia state programs, which make small, seed investments in new technology companies. Maryland participated in 10 of last quarter's deals.

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