Venture capital falls off its own fiscal cliff in Maryland -- Gazette.Net


Venture capital investment in Maryland companies in the second quarter plummeted to its lowest level in almost 16 years, according to a new report.

In eight deals, investors pumped $25.5 million into state businesses during the quarter. It was the first time such investments have fallen below $30 million since the fourth quarter of 1996, when eight deals totaling $16 million were made, according to the new MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

The second-quarter numbers are down steeply from $98.7 million in 25 deals in the second quarter of 2011 and from $65 million in 15 deals in the first quarter of this year.

“This is a wake-up call to our entire infrastructure in terms of needing to do a better job of telling the Maryland story to the investment community,” said Art Jacoby, interim CEO of the Tech Council of Maryland and managing partner of Maryland Cyber Investment Partners of Catonsville. “There’s no question, that’s a low number.”

And Maryland’s dismal quarterly numbers weren’t a reflection of a regional trend. The overall Washington, D.C., region — which includes Maryland — saw more total dollars invested, although fewer deals, in the second quarter than in the first quarter. However, second-quarter investment in the region was down from the second quarter of last year.

Nationally, venture capitalists pumped $7.0 billion in 898 deals in the second quarter. That was up from $6.0 billion and 809 deals in the first quarter — but down from $8.0 billion and 1,057 deals in the second quarter of 2011.

Also nationally, early-stage deals were up from the first quarter, while life science deals fell 9 percent in dollars.

Another new report, Dow Jones VentureSource, reports similar year-over-year trends nationally.

Regional numbers ‘bode well’

The regional rise speaks to the value of clusters and looking at the investment community from a regional perspective, said Julia Spicer, executive director of the Mid-Atlantic Venture Association in McLean, Va.

“While the numbers are not as good as what we would like, our region was one of the eight that went up in terms of dollars,” she said. “This bodes well, given the diversity within the region, and we’re encouraged by that. The overall health of the region is still good.”

While Jacoby emphasized that people should not overreact to the numbers of just one quarter in Maryland, as they might not include significant pending deals, the state has been seeing investments drop since the third quarter of 2011. Venture investments fell to $46 million during that quarter, after increasing since the first quarter of 2011.

“If it stays low, that would be quite troubling,” Jacoby said, adding that current trend is particularly disappointing considering Maryland has “plenty” of fast-growing niches.

“The numbers are obviously not great, but I don't think they are a good measure of actual activity. I am aware of several deals in the works,” Kenneth Carter, president and CEO at NexImmune in Gaithersburg and co-founder of BlackRock BioCapital, wrote in an email to The Gazette. BlackRock is an investment capital fund for early-stage technology-oriented biomedical companies developing novel therapeutic and diagnostic products.

Carter added that the “greater” need for solid programs and investment firms focused on early- and mid-stage deals in the region is apparent.

InvestMaryland ‘sending a message’

But the trend of venture capitalists sticking to mature companies or existing investments puts Maryland’s young life science companies at a disadvantage, said Judith Britz, executive director of the Maryland Biotechnology Center. She said Maryland has a disproportionate number of young biotechs with fewer than 10 employees compared with other states.

Prior uncertainty about the constitutionality of the individual insurance mandate of the federal Patient Protection and Affordable Care Act and ongoing uncertainty over how health care reform will play out also make investors hesitant, Britz said.

With the current state of the investment community, programs such as the state’s new $80 million InvestMaryland are “more important than ever,” she said.

InvestMaryland is the state’s plan to distribute money, raised through an auction of tax credits to insurance companies, to selected venture capital funds to invest in high-technology companies. The state itself will invest a portion of the money. The program was a key economic development initiative of Gov. Martin O’Malley (D) that the legislature approved last year.

“Perhaps even more important than the dollars is sending a message to the investment community that Maryland is serious about providing investment capital,” Jacoby said.

InvestMaryland is designed to not just help the state provide venture money but also promote co-investment from private investment firms, Britz said.

The program is working on narrowing down its 37 venture capitalist firm applicants to about six so it can began to award money in the next month, she said.