Washington area venture investing in the second quarter made a strong rebound from the first quarter and from a year earlier, according to a quarterly survey of venture deals.
A total of $211 million was invested in Washington area companies in the second quarter, compared with $158 million in the first quarter and $163 million in the second quarter of 2004. There were 58 deals in the second quarter, compared with 42 a year earlier. The number of deals was at its highest level since the 59 deals in the fourth quarter of 2001.
Venture industry experts said the increase in local venture investing mirrors several national trends that have steadily boosted quarterly investing since 2002: the continued strength of biotechnology investing, and the favoring by venture investors of later-stage companies that typically require larger infusions of cash.
"In the first quarter of this year we saw what was a decline in life sciences investing," said Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers, which conducted the MoneyTree survey with Venture Economics and the National Venture Capital Association. "But in the second quarter you saw that was not a trend. Biotech bounced back."
Local biotechnology deals in the second quarter totaled $30 million, up from $6 million in the first quarter and $26.5 million in the second quarter of 2004. Historically, companies in the telecommunications, software and biotech sectors, in that order, have been the largest users of venture funding in the Washington area. But for the time since the quarterly survey began in 1995, Washington area biotechnology companies received more venture funding than telecommunications firms. Local software firms garnered $76 million in the quarter, followed by biotech's $30 million. Telecommunications companies received $29 million in the quarter.
The region's largest venture deal in the quarter was not a technology company, however. Pack-Rat Northeast Development Corp., a McLean-based provider of self-storage boxes, received $23 million.
Of the $211 million in local venture funding for the quarter, $164 million, or 77 percent, went to more mature firms in the expansion or later stages of their development. Venture funding for early-stage firms held relatively steady from a year earlier, at $46 million from $43 million, in the second quarter of 2005. Start-up or seed funding -- potentially the most lucrative but also the most risky form of investing -- fell to just $1.8 million in the second quarter from $2.5 million a year earlier.
"Early stage investing has been very healthy over the last few years, but it is still off from a historical standpoint," said Shanda Bahles, a general partner of El Dorado Ventures, a West Coast early stage venture firm.
Nationally, venture capital funding in the quarter was $5.8 billion, compared with $6.1 billion in the second quarter of 2004.