Triangle VC hits $250M in record 1998
Triangle Business Journal - by David Strow
The Triangle's emerging companies raised nearly a quarter of a billion dollars in venture capital in 1998, the Council for Entrepreneurial Development has reported.
The final total of $249.56 million is up 49 percent from 1997, and was split among 58 separate companies.
"This is not a blip. This is a continuing trend," said Mitch Mumma, managing partner of Durham's Intersouth Partners. "Based on what I know, we should see a much larger amount raised in 1999."
The venture capital figure is similar to the $247.3 million in local activity recently reported by PricewaterhouseCoopers. However, the CED study doesn't include leveraged buyouts or takeovers.
CED's numbers are boosted by the inclusion of funding by individual investors, termed "angels."
The most active sector in the survey was software and information technology, which accounted for $109.7 million in activity over 20 deals. That's up more than 50 percent from 1997.
The surging Internet sector is responsible for that growth. Triangle Internet companies raised nearly $50 million in 1998, up from about $20 million in 1997. Durham-based SciQuest, which operates an Internet-based clearinghouse of scientific equipment, was the leader by raising $11 million.
"That reflects the mania that venture capitalists now have over anything Internet connected," said Jim Verdonik, an attorney with Kilpatrick Stockton in Raleigh. "We were a little bit behind other areas in getting start-up Internet companies going. Now, we're being brought along by what's happening in (Silicon Valley)."
Mumma thinks the region will see at least one Internet IPO in 1999.
"In 1999, Internet will lead the way," Mumma said. "Biotech will always be strong here, even though it's out of favor right now. There are high-profile firms exiting (biotech) altogether, because it's easier to make money in IT."
Indeed, local biotechnology investment dollars declined 23 percent to $50.2 million. Still, the number of life science deals rose from 14 to 17. Health care investments, which are a separate category, rose 222 percent to $40 million.
Still, Verdonik isn't convinced the biotech arena is in trouble.
"That's a fluke in the numbers," he said. "It is a small base, and that has not changed. It is harder to develop, and it takes a longer lifecycle for biotech companies to mature."
Overall, the survey indicated that the Triangle is seeing more early stage deals. The number of deals rose 59 percent, and the average deal size dropped from $3.64 million to $3.33 million. That's being driven in part by more spinoffs emerging from the area's universities, said Monica Doss, executive director of the CED.
"Seeing more companies at an early stage being funded is encouraging," she said.
The study also noted that the region is receiving more money from out-of-state groups. Of the 90 different investors in the report, 80 percent were from outside North Carolina. In 1997, it was two-thirds of the total.
"In the past, we always had to fight the battle of whether or not the Triangle was a good place to invest," Mumma said. "We no longer have to argue that."
Triangle-based companies received 82 percent of the venture capital funding in North Carolina last year, which Doss said is consistent with recent history.
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