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How Low Can It Go?
VC investments in state companies reach eight-year low
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Business New Haven
5/12/2003
By: BNH
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STAMFORD - Venture-backed companies in Connecticut raised less money in the first quarter of 2003 than in the fourth quarter of 2002, approximating funding levels reached in the second quarter of 1995.
So says the PricewaterhouseCoopers/Thomson Venture Economics/National Venture Capital Association MoneyTree Survey, which reports that just six Connecticut companies received $19.5 million in venture capital funds during the first quarter of 2003, comparable to the $22.5 million invested in the second quarter of 1995.
First quarter 2003 results were down from $72.3 million invested in 13 companies in the fourth quarter of 2002.
According to Owen Davis, co-chair of PricewaterhouseCoopers' venture capital/private equity practice in Connecticut and Westchester County, N.Y.: "First quarter 2003 investments in Connecticut companies slipped this quarter as a result of global economic uncertainty due in part to geopolitical risk. We are seeing that investment rounds are smaller reflecting declines in company valuations and investment levels are indicative of those experienced in the mid-1990s."
Davis says that the most notable investment in Connecticut this quarter went to Mangrove Systems (see related story, page 3), a Wallingford developer of next-generation networking platforms that received $9.6 million in investment dollars.
Another significant Connecticut investment is Sopherion Therapeutics, a Branford biotechnology company that received $26 million from investors in March. David characterizes that investment as "a very positive indication of the dividends being paid by the focus on biotech by our state and universities."
Nationally, venture capital investing fell sharply starting in 2001 and has steadily drifted downward ever since. In terms of dollars, investment in the first quarter of 2003 was the lowest since the third quarter of 1997. The number of companies receiving funding was the lowest since the third quarter of 1996, a six-year span.
According to Tracy Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers: "The reality is that venture capital will not lead the economy out of this slump. It will follow it out. Restoration of global stability appears to be underway. But until the public markets and liquidity opportunities show signs of sustainable improvement, venture capital will not rebound."
In the first quarter, the New England area (including Connecticut exclusive of Fairfield County) placed second nationally in number of deals and dollars invested among major regions, following Silicon Valley, Calif. New York Metro (including Fairfield County) placed fifth.
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