Venture funding in Connecticut stalled in 2011, falling 37 percent from a year earlier, even as deal making picked up across the rest of the country.
Venture capitalists injected about $135 million in Connecticut companies during 2011, a 37 percent decline from the nearly $216.5 million invested in the year-ago period.
That sum represents 55 deals, compared to 59 deals in 2010, according to the latest MoneyTree report, a joint effort of PricewaterhouseCoopers and the National Venture Capital Association.
Nationwide, venture capitalists invested $28.4 billion in 3,673 deals in 2011, an increase of 22 percent in dollars and a 4 percent rise in deals over the prior year.
Peter Longo, president and executive director of Connecticut Innovations, the state’s quasi public technology investment arm, said he noticed a lot more smaller deals getting done in 2011, which likely pushed down the state’s total investment numbers.
Many investors still remain skittish about parking larger sums of money into later stage companies, he said.
But the number of investments actually made in 2011 was about equal to 2010, which demonstrated that investors still had an appetite for deals even though they weren’t willing to pony up as much cash.
Of the 55 investments made in 2011, 60 percent were in early stage or startup companies, the MoneyTree report said.
“Hopefully these smaller deals will lead to more venture capital being raised by those firms down the road so that they can continue to grow and add jobs,” Longo said.
The fourth quarter of 2011 saw a particular slowdown in the amount of money investors were willing to bet on startup firms in Connecticut, with 12 deals getting done for a total of $14.9 million, compared to $37.3 million invested in 14 deals in the year-ago period.
Nationally, investments in the fourth quarter of 2011 also shrank to $6.6 billion from $7.3 billion a year earlier.
According to the MoneyTree report, there were no blockbuster deals in Connecticut during the quarter. Simsbury health care technology company eVariant secured a $5.3 million investment from a New York-based private equity firm.
The company has developed a cloud-based customer and provider relationship management software that helps hospitals attract patient volume through digital marketing campaigns. The firm plans to add 15 to 20 employees in the next six to eight months with its new investment.
Bloomfield combustion engines developer LiquidPiston secured a $4.3 million cash injection to further advance its fuel efficient rotary diesel engine technology.
CI was the most prominent investor in the quarter and was involved in at least seven deals totaling $3.5 million. CI didn’t invest all that money, but it did provide at least some funds in each of those deals. CI did not, however, deploy more than $600,000 into any one company.
For all of 2011, 15 Connecticut deals were struck in the software industry totaling $27.8 million, while the medical devices and equipment sector received $27.6 million in funding spread across four deals.
Nationally, double-digit increases in investment dollars in 2011 were spread across a number of industries, including the clean technology and internet-specific sectors. But the software industry maintained its status as the single largest investment sector with 1,004 deals totaling $6.7 billion, a 38 percent increase from a year earlier.
In terms of the outlook for 2012, Longo said the pipeline looks strong for startup and pre-seed firms, but the market for later stage companies remains on uneven ground.
It could be a much more active year for Connecticut Innovations in particular. CI will be deploying an extra $50 million each year for the next five years thanks to a cash injection approved by the state legislature late last year.
That includes $4 million per year for CI’s pre-seed program and $22 million per year for seed stage and Series A investments, which help entrepreneurs grow existing businesses, and for follow-on investments in CI portfolio companies. “It allows us to invest more money into more companies,” Longo said.
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
