Venture capital soars in third quarter in Maryland -- Gazette.Net


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Running a company that processes credit card information can help an executive keep his finger on the pulse of the economy.

Hossein Noshirvani has enjoyed this perspective for eight years while managing Motionsoft, a Rockville company that provides membership management services for health clubs.

“There’s been a nice upward trend in both the economy and memberships within the last year,” said Noshirvani, whose company’s sales have improved to the point that it requires more employees.

A $3 million venture investment in the third quarter will help Motionsoft do just that, as it plans to hire up to 30 more people, he said.

Motionsoft was among the 20 privately held Maryland companies that racked up a total of $158 million in venture capital investments in the third quarter, according to the new MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters.

This cash total dwarfed the second quarter’s $25 million and was the most invested in the state in a single quarter since the third quarter of 2010, when $163 million was pumped into privately held Maryland companies.

“It appears much more activity has been going on in the entrepreneurship sector. When there’s good deals, money will follow,” said Robert Rosenbaum, president and executive director of Maryland Technology Development Corp. in Columbia.

Rosenbaum attributed the jump to the state “making up for lost ground” and businesses doing well enough to gain traction in the venture capital market.

“It’s really encouraging to see the investment community responding,” he said.

Four companies received at least $25 million this quarter, with Tenable Network Security snagging the most, $50 million.

Tenable, a cybersecurity software company in Columbia, received the money from Accel Partners in Palo Alto, Calif. Tenable is a vulnerability management company that audits clients’ cybersecurity risks.

The company plans to use the money to expand its research and development and grow the European office it launched in the U.K., plus open one in the Asia-Pacific region, said Jack Huffard, its president and co-founder.

Huffard added that the money sends a signal to the market that Tenable wants to stay independent and has aspirations of going public.

Tenable’s revenues have climbed more than 550 percent in the last four years, resulting in a doubling of its workforce to almost 200 during the year. It expects to double again in the next two years, according to the news release.

With Tenable’s 15,000 paying users and its growing revenues, the new funding was not hard to land, Huffard said, adding that Tenable had been talking to Accel for four years.

“Tenable is the thought leader in the rapidly growing and critical area of vulnerability assessment,” said Ping Li, general partner at Accel, who has joined Tenable’s board of directors.

Information technology “security practitioners fight the constant battle to stay ahead of network attacks, and it’s only getting harder. Many of these practitioners globally rely on Tenable for their vulnerability management platform,” Li said.

“It’s the perfect storm and an opportunity to accelerate their growth,” he said.

Li emphasized that the information technology business community has been increasing in activity and has led to an environment that is ripe for entrepreneurs to be launching ventures.

Software companies SonaType in Silver Spring and Zenoss of Annapolis, and medical device company Telcare in Bethesda also received $25 million in the third quarter.

Officials with SonaType, Telcare and Zenoss could not be reached for comment.

‘Technical strengths in the region’

“It appears there has been far more follow-on financing,” said Julia Spicer, executive director for the Mid-Atlantic Venture Association in McLean, Va. Spicer referred to investors continuing to invest in the next stage of a company after their initial seed funding.

Almost half of Maryland’s investments went to early-stage companies, with the software industry accounting for the lion’s share of capital.

All told, the Washington, D.C., region received $216 million in 47 deals in the third quarter, up from $203 million in the second quarter but down from $246 million for the third quarter of 2011.

“It’s one thing to get that seed capital but then to attract the next stage of capital is equally important,” Spicer said. “Historically, our institutional investors have been very consistent about putting money to work in this region.”

She also pointed to the investment community’s significant interest in the software and medical devices industry this quarter.

“This plays to a lot of our technical strengths in the region,” Spicer said, adding that she thinks the interest will continue.

Spicer also warned to not judge the market by an individual quarter but to look more for an overall trend.

Investor Novak Biddle Venture Partners in Bethesda still sees a struggling investment market, said Jack Biddle, founding general partner.

“Most of the money is going to Silicon Valley, with some going to New York,” he said, explaining that investors perceive those areas to be the hot spots for big deals due to the success of social media networks such as LinkedIn and Facebook.

Nationally, venture investment in the third quarter totaled $6.5 billion among 889 deals, which remains below the $8 billion and $7 billion quarters seen in 2011.

Novak Biddle also invested $145,000 in later-stage funding for business management software company Appfluent Technology in Rockville. Novak has invested with Appfluent since 2009 and considers Appfluent to have a “good growth curve,” Biddle said.

Of the eight Maryland investors that provided money this quarter, three, including Tedco, invested in Maryland companies.

Tracy Xie, senior director of finance at OriGene Technologies in Rockville, has turned to the Chinese investment market.

OriGene received $15 million from IDG Capital Partners to continue research and development of its protein and antibody work, Xie said. OriGene has 400 employees globally and 75 in Rockville.

“The Chinese investment market is going strong, unlike here in the U.S.,” Xie said.

But Noshirvani has more hope, saying that the investment increase in the third quarter reflects an investment community that realizes it has sat on the sidelines too long and needs to act.

“With the general improvement of the economy, businesses are seeing more growth,” he said.

lrobbins@gazette.net