Local venture funding bucked the national trend and ticked up in the second quarter, but the amount of money invested in Orange County companies remained far below its year-ago level.
In the second quarter, venture financing of 15 Orange County companies totaled $157 million, according to the PricewaterhouseCoopers LLC Money Tree Survey done in partnership with Reuters Group PLC’s VentureOne. That was up from the first quarter’s $138 million total,also spread among 15 companies. But the recent figure still is 56% below the record $358 million in deals landed by 30 OC companies in the second quarter of 2000.
“The industry is obviously going through consolidation,” said Randy Lunn, general partner at Irvine-based Palomar Ventures. “In the second quarter venture funds were working on their existing investments.”
“Two things stand out,” said Greg Yurkovich, associate at Newport Beach-based venture capital firm Forrest Binkley & Brown.
“A lot of funds are basically out of cash,” he said. “A lot of people are realizing that there are few good quality deals. There just isn’t enough cash and they (venture) have to decide between allocating to new investments and funding their existing funds.”
The sequential rise in OC fundings ran counter to the national trend in the second quarter, PricewaterhouseCoopers said.
Nationally, 669 funding deals valued at $8.2 billion were struck, compared with 752 deals valued at $10.4 billion in the first quarter.
Yurkovich said venture capitalists have become cautious because of the bloodbath in the technology sector. “Many funds had to write off an unprecedented amount in technology and telecom companies,” Yurkovich said.
The Money Tree Survey doesn’t capture all the funding that takes place in OC. A few local companies that received money from corporate backers or other investors aren’t captured by the survey.
While the overall funding was lower than what it was last year, medical device makers and healthcare firms saw an increase in overall activity. Six device makers received funding in the second quarter compared with three last year. Those six device makers together received $44.35 million compared with the $33.5 million in funding for such firms in the second quarter last year.
Two healthcare services companies received $29.5 million in the second quarter, compared with $15.4 million received by three companies in the same period in 2000. The eight device and healthcare firms received half the total venture funding received by OC companies.
“Biotech (and healthcare) is still an exiting field,” Yurkovich said. “A lot of funding continues to pour into that space.”
The medical device and healthcare companies are benefiting as venture funds shift their focus from e-commerce and software companies.
In 1999, OC medical device makers received $76 million in venture funding. That rose to $84 million in 2000. In the first six months of this year, medical device makers already have received $78 million in funding.
The biggest chunk of venture money in the second quarter went to Irvine-based Viacore Inc. The supply chain software maker received $43 million from VantagePoint Venture Partners Inc., Cisco Systems Inc., Dell Computer Corp., Hewlett-Packard Co. and the venture arm of Intel Corp. The firm said it plans to use the money for product development and to go after new customers in the automotive and aerospace industries.
AccentCare Inc., an Irvine-based elder-care services company, received $25 million in its third round of private financing. The company provides care and management services for senior citizens who want to remain at home, rather than go into nursing homes.
Two-year-old AccentCare has raised $45 million so far. Three Arch Partners of Menlo Park and Highland Capital Partners of Boston led the recent investment round with $20 million. The remaining money came from several returning investors: Cardinal Health Partners of Princeton, N.J.; Mission Ventures of San Diego; Piper Jaffray Ventures, the Minneapolis-based venture arm of U.S. Bancorp; and Salix Ventures, with offices in Nashville, Tenn. and San Francisco.
SenoRX Inc. of Irvine received $19 million for its second round of funding. The company makes diagnostic equipment for breast cancer.
Lunn said that while the second quarter saw a sharp decline in venture activity, the third quarter could see a pickup. “At the end of the second quarter VCs were cautious,” Lunn said. “People are now looking at new investments.” n
