Venture capital investing in the Washington area dropped significantly in the third quarter from the summer, led by continued weakness in early-stage investing in telecommunications and software companies.
For the first time since the MoneyTree venture capital investing survey began cataloguing quarterly venture deals in 1995, the region's biotechnology companies attracted more investment than any other sector. Each quarter, accounting firm PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association produce the MoneyTree survey.
In the three months ended Sept. 30, 39 private companies got $202 million in venture money, compared with $265 million in 60 deals in the second quarter. In 2000 and 2001, $1 billion-plus quarters were routine in the area, in a time when local software and telecommunications companies were lavishly funded by venture firms. But in the past three years, total quarterly venture investing has hovered between roughly $150 million and $400 million a quarter in the Washington region.
The largest third-quarter venture deal in the Washington area was in biotechnology: $30 million invested in Synthetic Genomics Inc., an early-stage Rockville company founded by geneticist J. Craig Venter, who is working on genetic modification techniques. That deal helped make biotechnology companies the biggest area collector of venture funds in the quarter, with $68.8 million in 12 companies. Local software companies garnered $38.2 million in 13 deals, while telecommunications companies collected $29.6 million in just four deals.
Nationally, venture capitalists invested $5.3 billion during the quarter, down from $6.1 billion in the previous quarter. The largest deal during the quarter was the $150 million invested in San Francisco telecommunications company FiberTower Corp. Of the 10 largest venture deals in the quarter, seven were in California.
Venture investors typically buy the stock of small or start-up companies with new business ideas or technologies. In the past 10 years, it has become the most popular way to fund early-stage technology companies. However, the earliest form of venture investing, usually called seed investing, has dropped substantially since 2001, as more venture funds are directing money to their existing -- and less risky -- portfolio companies to help them expand their businesses. Only $894,000 was invested in local seed-stage companies during the quarter, one of the lowest levels on record. By comparison, $161 million was invested in local seed-stage companies in the first quarter of 2001.