Washington-area companies raised nearly $300 million in venture capital funding during the third quarter, putting the region on track to reach $1 billion in investments by the end of the year, according to recently released data from the National Venture Capital Association.
In all, 49 local companies raised $299.5 million during the third quarter, a 47 percent increase from the $204 million the region’s firms secured during the same period last year, according to PitchBook, a research company that provided the data for the association’s report.
Software firms collected nearly 60 percent of the region’s funding, with 22 companies receiving a total of $178 million. Five of the six largest deals overall went to such companies in the region.
“The reason that venture capital firms love software companies is that they are efficient,” said Brad Phillips, director of emerging company services at PricewaterhouseCoopers. “They provide a quicker time to market, and to exit [via a sale or public offering], for venture capitalists. Software has always been big nationally, and it’s becoming big locally.”
The quarter’s largest Washington-area deal: A $42.5 million investment in PhishMe, a company based in Leesburg, Va., that specializes in cybersecurity software. Company executives say they plan to use the money from D.C.-based Paladin Capital Group to create new products and invest in research and development.
“The company will also use the funds to boost its international reach by expanding further into Europe and Asia,” chief executive Rohyt Belani said in an email.
Other area software firms that received funding include the D.C.-based digital learning company EverFi (which raised $40 million), D.C.-based Virtu ($40 million), which specializes in data encryption and digital privacy, and Arlington, Va.-based Distil Networks ($21.3 million), a cyberthreat detection firm.
Nationally, however, third-quarter funding tumbled 29 percent. Venture capitalists invested $15 billion in 1,180 U.S. firms during the third quarter, down from the $21.1 billion invested in 2,559 deals during the same period last year.
“Nationally, venture capital activity has been overheated the last couple of years,” said John Backus, managing partner of Reston, Va.-based New Atlantic Ventures and an NVCA board member. “This year we’re back to where we should be, with the industry putting the brakes on itself.”
The uncertainty surrounding next month’s presidential election has also led to a slowdown in investments and a bottleneck of companies waiting to go public, Backus said.
“There’s a huge weight, a boat anchor sitting on top of the whole market right now, and that’s the election,” he said. “If you’re an investor in Exxon or General Motors, it doesn’t matter as much. But if you’re a new company that’s growing quickly, investors don’t want to take a chance when there’s this big uncertainty out there. That veil gets lifted Nov. 8.”
So far this year, venture capitalists have doled out $897.5 million to the region’s firms, about 6 percent less than they had at this point last year.
The flurry of recent investment in software companies has shifted the local balance to favor Virginia and the District.
Virginia raised $168.2 million in venture capital funding last quarter, accounting for 56 percent of the region’s investments. D.C.-based companies raised $104.1 million, while those in Maryland collected $81.8 million.
“There was a significant lack of biotech funding this quarter, and that affected Maryland more than other regions,” Phillips said.
The vast majority of local investments — 39 of 49 — went to younger companies in the form of angel investments, seed money and early-stage venture capital, according to data from PitchBook. Among the more established local companies that raised later-stage funding were the fast-casual restaurant chain Sweetgreen and Zoomdata, a Reston-based visual analytics firm. (Both declined to disclose how much money they raised.)
“We’re planting lots of seeds with companies that will hopefully raise even bigger rounds later,” Backus said. “There is potential for a lot of growth.”
The venture capital association previously partnered with PricewaterhouseCoopers for the quarterly MoneyTree Report, which used investment data from Thomson Reuters. The new partnership with PitchBook includes a broader swath of data, including information on exit deals and fundraising deals, according to Ben Veghte, an NVCA spokesman.