Washington area companies secured more venture capital in the third quarter than ever before, according to a study released last week by PriceWaterhouseCoopers of New York.
Although still billions of dollars behind Silicon Valley, the Washington region is not far behind other hot spots such as New York and New England, coming in fourth on the survey's ranking of venture-backed investing in 18 regions. More important, interest in the region is growing rapidly. At $638.1 million, investment in the area was six times what it was for the same period a year ago.
There has probably never been a better time to get venture funding. Overall during the quarter, venture capital companies infused a record $9.04 billion into the country's businesses, a 138 percent increase from the same period a year ago. Most of the venture capital money went to technology-related companies.
In the Washington region, which includes Baltimore, all but three of the 61 venture capital deals in the third quarter involved technology-related firms.
"When it comes to venture capital, this area is . . . extra hot, based largely on the fact that it has become a real home for Internet companies," said Michael W. Robinson, a spokesman for Friedman, Billings, Ramsey Group Inc. in Arlington.
Friedman's FBR Technology Venture Partners L.P. is one of the area's most active venture capital firms. It invested in five companies in the quarter ending Sept. 30, according to the survey.
In total, FBR Technology Ventures has invested in 21 companies since its inception in 1997. In 1999 alone, seven of those have gone or are about to go public. "That's huge in the venture capital world," Robinson said. "That tells you a lot about this area."
One of those investments is VarsityBooks.com, a Washington-based online college textbook retailer that has registered with the Securities and Exchange Commission to go public. VarsityBooks secured $30 million in funding during the quarter from FBR and other firms, including the Mayfield Fund of Menlo Park, Calif.
District-based companies accounted for roughly 11 percent of area deals, drawing $180.7 million. A whopping $90.2 million of that went to Diginet Americas Inc., a District-based satellite Internet service provider that serves Latin America. The Diginet deal was the largest of any venture capital transaction in the Washington area in the quarter. Diginet was funded by a group of five companies, including Norwest Venture Partners of Minneapolis and OneLiberty Ventures of Boston.
In comparison, Maryland accounted for roughly 40 percent of the region's venture capital money, snagging slightly more than $186 million. Virginia made up the remaining percentage, attracting $269.4 million in venture funding, $158.3 million of which went to Fairfax County, according to the survey (the Fairfax County Economic Development Authority reported an additional $3.6 million not included in the survey). The biggest winner in Virginia was Advanced Switching Communications Inc. of Vienna, which secured $35 million this quarter.
In the District, according to the survey, the seven companies fell into four categories: software and information, business services, retailing (VarsityBooks) and communications.
Software and information companies, such as ZeniMax Media Inc., a Rockville software engineering and consulting firm, accounted for nine of the 24 area companies on the survey list. ZeniMax secured $11.4 million in the third quarter.
Communications companies, such as Chromatis Networks Inc., an optical networking equipment firm in Bethesda, accounted for eight of the Maryland companies on the list.
In Virginia, software and information companies reigned, including Engenia Software Inc. of Reston. Only a little more than a year old, Engenia, which develops enterprise management software, secured $6 million.
The Washington region will most likely continue to be flush with venture capital money for several years, said Gene Riechers, managing director of FBR Technology Venture Partners.
Part of the reason is simply that the Washington technology boom is younger, but also "Silicon Valley faces constraints we don't face," such as a more limited geographical area and exploding real estate costs, Riechers said.
Still, "I think the region, the country, and the world are in the very early stages of this technology revolution," he said. "If you think this is a record quarter, just wait."
In the Money
The biggest venture capital deals in the region in the third quarter:
Advanced Switching Communications
Venture capial investments by region
Silicon Valley $3.3 billion
New England $927 million
N.Y. Metro $689 million
D.C. region $638 million
Southeast $632 million
L.A./Orange Cty $540 million
Texas $485 million
Midwest $332 million
Colorado $307 million
. . . by state
Virginia $269 million
Washington D.C. $181 million
Maryland $179 million
West Va. $9 million
. . . by industry in the D.C. region
Communications $306 million
Software/Info. $140 million
Biotechnology $57 million
Distribution/Retail $55 million
Business Services $35 million
Healthcare $31 million
Semiconductors $8 million
Consumer $4 million