Venture capital firms invested almost $365.7 million in the San Diego region during the three months that ended in June – a 28 percent decline from the $509.8 million invested during the same quarter last year.
The single biggest deal in the quarter was $50 million in venture funding for Sapphire Energy, a San Diego renewable energy startup that uses algae to brew 91-octane gasoline, according to findings released yesterday.
The second-quarter venture survey was done by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Reuters.
The survey also showed venture funding remained steady nationwide, with almost $7.39 billion pumped into 990 U.S. startups – compared with $7.36 billion invested in 1.033 deals during the same quarter last year.
A rival survey by Dow Jones VentureSource found that venture funding fell 12 percent nationwide, to $6.64 billion in 602 deals, during the second quarter.
“We still saw steady deal activity and investment in the first half of the year, which is encouraging,” said Jessica Canning, director of global research for Dow Jones VentureSource.
But intense turmoil in U.S. capital markets is putting venture firms increasingly into a bind because they must continue to fund companies that otherwise would be ready for a buyout or initial public stock offering.
The situation for new companies is comparable to college seniors who decide not to graduate because the job market is too tough, said John Taylor, vice president of research for the National Venture Capital Association.
Venture firms are the parents who must continue to support them, he added.
“There's no doubt about the fact that the markets are very unreceptive right now,” said Kathleen Smith of Renaissance Capital, a Greenwich, Conn., firm that provides independent research on IPOs, or initial public offerings.
Only five venture-backed companies have completed IPOs this year, and none were done during the second quarter, Taylor said. It's the first time in 30 years that a quarter has passed without at least one venture-backed IPO.
Mergers and acquisitions have also plummeted, as sources of debt financing have come under similar stress. The number of buyouts involving venture-backed companies has fallen 28 percent during the first half of the year, according to the Virginia-based association.
With the exits to capital shut down, Taylor counted a record number of 318 later-stage venture deals during the second quarter. For the first time since 2001, the number of first-time venture investments also declined – to 351 from 356 so-called seed-stage financings in the previous quarter.
“It's a measured concern at this point,” said Trevor Loy of Flywheel Ventures, a firm based in Santa Fe, N.M. “We view it as a cyclical phenomenon. Clearly, the longer it plays out, the more we would have strong concerns.”
In San Diego, the 28 percent decline in venture funding came after a strong year in 2007. Second-quarter venture investments in the region this year were down just 3 percent from the five-year average of $376.9 million, according to data from the PricewaterhouseCoopers survey.
Still, venture activity has been sluggish, said Jeb Spencer, managing partner of TVC Capital, a small San Diego investment firm that specializes in software deals.
“I feel bad for anyone trying to raise money right now,” Spencer said. “I would say across the board that venture capitalists have taken the summer off,” Spencer added. “We'll see if they're back when school starts.”
As usual, venture funding for biotechnology, medical devices and other life sciences companies accounted for the biggest share, about $151 million, or 41 percent of the total funds invested.
Five of San Diego's top 10 investments were for life sciences companies.
The significant San Diego deals identified in the PricewaterhouseCoopers report include:
$43 million for GreatCall Inc., which provides simple cellular handsets and personalized services.
$30 million for Veoh Networks Inc., a software developer specializing in Internet television peer-casting.
$20.6 million for BrainCells Inc., a biotechnology startup developing drugs that promote the growth of new brain cells. The company raised $30 million in the first quarter.
$20.5 million for Apoptos Inc., a biotech developing anti-cancer drugs that activate apoptosis, or programmed cell death.
$18 million for Plimus Corp., which provides electronic commerce systems to help companies grow their online business.
Bruce Bigelow: (619) 293-1314; bruce.bigelow@uniontrib.com
