By Zachary A. Goldfarb
Washington Post Staff Writer
Monday, January 21, 2008

Venture capital investments in the region continued to climb in 2007, as companies drew more funding than at any point since the technology bubble exploded.

Venture capitalists invested $1.24 billion in area companies last year, the most since 2001, according to a report by PricewaterhouseCoopers and the National Venture Capital Association, based on Thomson Financial data. In keeping with historical patterns, software companies drew the most money, followed by firms in biotechnology and medical services.

Investment was up 8 percent from 2006, slightly less than the 11 percent growth nationwide. The Midwest attracted more capital last year than Washington did, a reversal of the past several years.

Industrial and energy firms drew $75 million with 14 deals, significantly higher than in recent years, underscoring the ballooning interest in backing companies in "clean-tech" and "green-tech" areas.

In the final three months of 2007, investment in the D.C. area powered ahead despite economic concerns. Investors put $404 million into regional companies.

The quarter's largest deals included $26.5 million for Avectra, a McLean database software company; $24.3 million for Hillcrest Laboratories, a Rockville entertainment software firm; $20.1 million for DigitalBridge Communications, an Ashburn telecommunications company; and $20 million for Jobfox, a McLean Internet company.

Some venture capitalists said the economic downturn was likely to have a modest impact on investment.

"We'll see a related cooling off in venture investments, though not as nearly as severe as the market correction in the short term. If the slowdown lasts for over a year, then the impact will become greater in the venture industry," said Mark Frantz, a general partner at RedShift Ventures in Arlington.

Julia Spicer, executive director of the Mid-Atlantic Venture Association, said a recession would have minimal direct impact on venture investing because most venture funds do not rely on large amounts of credit and therefore are not as vulnerable to interest rate fluctuations.

"From an indirect perspective, you may get an effect on corporate purchasing, which has an effect on technology and the things that are focusing on corporate enterprise," Spicer said.

Roger Novak, a general partner at Novak Biddle Venture Partners in Bethesda, said it will take a while for valuations -- sky-high in recent years during a second technology boom -- to reset as the economy declines.

Then again, he said, "for early-stage investors such as ourselves, we are still actively searching for deals."