After an impressive rebound in Connecticut venture funding in the first quarter — which stoked hopes of a thawing in the state’s credit markets — deals seemed to dry up in quarter two as funding plummeted 50 percent.
Venture capitalists injected about $25 million in Connecticut companies during the second quarter of 2010, a 50 percent decline from the nearly $50 million invested in the year-ago period.
That sum represents 16 deals, compared to 12 deals a year ago, according to the latest MoneyTree report, a joint effort of PricewaterhouseCoopers and the National Venture Capital Association.
Nationwide, venture capitalists invested $6.5 billion in 906 deals in the second quarter, a 49 percent increase from the fourth quarter of 2009.
Connecticut’s $25 million investment total was an 81 percent drop from the first quarter of 2010, when 15 deals totaled $127 million.
But at least one industry observer said he was skeptical of the data, and that the deal totals appear to be underreported.
“I think there are other deals happening out there and certain industries appear to be underrepresented in the numbers,” said Eric Dale, head of Robinson & Cole’s business transactions group.
According to the MoneyTree report, there were no blockbuster deals in Connecticut during the quarter. Wallingford-based CyVek, Inc. received the largest capital injection of just over $4 million.
Connecticut Innovations, the state’s technology investing and innovation arm, was involved in a majority of the Connecticut deals during the second quarter, including injecting $802,500 in CyVek, which will use the money to develop technology that measures multiple substances undergoing chemical analysis in biological samples.
CyVek’s technology is aimed at drug research and patient-care markets.
New Haven-based Mira Dx, which is developing gene-based laboratory tests that aim to provide individualized information on the likelihood of disease occurrence and response to certain types of therapy, also received $4 million in investments, including a $1 million injection from Connecticut Innovations, or CI.
In Connecticut, the biosciences sector saw the most funding in the quarter — $11.5 million — spurred by the CyVek and Mira Dx deals. Medical devices and equipment, IT services and software received the next largest chunks of cash, raking in $5.1 million, $3 million, and $2.8 million respectively.
Three other industries — including industrial/energy, media and entertainment, semiconductors — also received funding in the quarter.
Dale, of Robinson & Cole, said he believes more deals were done in the IT services and consumer products sector in Connecticut, and that the report represents as little as half the deals inked during the quarter.
Overall, Dale said he is seeing a thawing in the venture credit capital markets especially from the small angel investors market and larger deals over $5 million.
Where deals continue to be slow, however, are those between $1 million and $3 million. “We are seeing smaller and larger deals, but there is still a gap in the market,” Dale said.
Dale said it’s difficult to make money on early stage investments, which has made investors gun-shy. Angel investors, on the other hand, tend to be long-term investors, who are not “doing this for a living,” so they are more willing to be patient and think long term, in terms of the return.
Michael Carter, the managing director of Southport-based Carter Morse & Mathias, an investment banking firm, said investors seem to be more focused on their portfolios and prefer later stage investments.
He said his firm is actively working on several later stage private equity investments.
“The good news is that we are receiving a warm reception for later stage transactions where companies are executing on their business plan,” Carter said.
CI was the most prominent investor in the quarter and was involved in at least seven deals totaling $23 million. CI didn’t invest all that money, but it did provide some funds in each of those deals.
Nationally, the biotechnology sector received the highest level of funding — $1.3 billion, from 139 deals during the quarter.
The overall increase in venture funding across the country, is raising optimism about the state of the industry.
“As the exit market begins to show signs of life, venture capitalists are now able to look increasingly at new investments outside their existing portfolio,” said Mark Heesen, president of the National Venture Capital Association. “This dynamic translates into momentum in the seed and early stage sectors where valuations remain reasonable and opportunities are great.”
Greg Bordonaro writes the Financial Sense column every other week. Reach him at gbordonaro@HartfordBusiness.com.
