Venture investors are pumping more money into the Washington area, though a smaller number of companies are on the receiving end.
After hitting a seven-year low in the second quarter of 2004, venture investments picked up in the third quarter with 31 firms in Maryland, Virginia and the District raising a total of $156 million.
"The increase incrementally wasn't that large, but any positive movement was a good sign," said Cory Starr, a partner at PricewaterhouseCoopers who leads the firm's technology, communication and media practice in Washington. "There is more expansion-stage activity going on, which means the VCs are funding smarter and when they decide to fund they are doing so in larger increments."
The area bucked a slide in national venture investing for the quarter. Nationally, $4.3 billion was invested in 601 companies, down from $5.9 billion in the previous quarter and flat compared with the $4.3 billion invested in the year-ago period. The data are provided by the MoneyTree survey sponsored by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.
Software makers landed the biggest share of the cash in the Washington area, with $65 million invested in 14 local companies. The local biotechnology sector followed, with six companies receiving a total of $34 million. Three companies in the business products and services industry landed $33 million total.
The biggest deal of the quarter was the $20 million in expansion capital received by Liquidity Services Inc., a District firm that helps companies manage surplus assets. The company's funding came from ABS Capital Partners of Baltimore. Vanda Pharmaceuticals of Rockville received $18.5 million in early-stage capital from a group of investors, including Prospect Venture Partners and MedImmune Inc.
Expansion-stage companies received the majority of the funding, but even those companies that had gone through the process previously say the fundraising environment remains tough.
Lighteningcast Inc. had raised more than $20 million in three rounds of funding since it was established in 1999. The Alexandria company, which sells technology to help integrate advertising on broadband video, struggled in its early years as consumers were slow to adopt broadband. But the company's investors stuck with the firm, and last year veteran entrepreneur Tom MacIsaac was brought in to serve as Lighteningcast's chief executive. Prospective investors wanted to see "meaningful customers, revenue and that break-even was well within reach," MacIsaac recalled. After six months of fundraising, the firm landed more than $5 million from new and existing investors.
Almost half of the deals were first-time fundings, a sign that venture capitalists are still looking for promising young companies, Starr said. "It's an indicator that the companies are executing against their plans and the VCs are recognizing that and funding that progress."