Startup capital funding slips in fourth quarter, but increases in 2010

  By Staff and wire reports

Saturday, January 22, 2011Funding to startup companies sagged a bit in the fourth quarter of 2010 as venture capitalists funneled less money into fewer companies, with biotechnology taking the brunt of the drop-off, according to a study released Friday.

For the full year, however, overall investments rose 19 percent from their 2009 level.

And in Pittsburgh, investments totaled just over $158 million for 51 companies last year, up 77 percent after a plunge in 2009.

“You are starting to see venture capital investing come back now,” said Koleman Karleski, managing director of Chrysalis Ventures, which has an office in Pittsburgh.

The city is one of Chrysalis’s focus markets. “We view the middle part of the country as overlooked from a venture capital standpoint,” said Karleski, a Pittsburgh native who is on the board at Foundation Radiology Group.

Chrysalis invests in the Downtown-based company, which contracts with hospitals to provide next-generation radiology services.

Typically, new companies in regions east of the Rocky Mountains and southwest of New York City get 15 percent of the available dollars, while the rest goes to the east and west coasts.

Nationally, startup investments fell 7 percent to $5 billion in the October-December quarter, compared with $5.4 billion invested in the same quarter in 2009, according to the study. A total of 765 startups snagged funding, a drop of nearly 12 percent from the fourth quarter of 2009.

The study was conducted by PriceWaterHouseCoopers and the National Venture Capital Association based on data from Thomson Reuters. It indicated that fourth-quarter drop was due in large part from a decline in funding to biotechnology companies. Biotech funding rose in the first half of the year, but declined in the third and fourth quarters.

In the last three months of the year, slightly more funding went to companies in the expansion and later stages of development than in the same quarter in 2009 — $3.4 billion — and that was split among 400 companies, down from 458. As usual, those companies received the bulk of venture capital funds distributed during the quarter.

The environment for acquisitions and initial public offerings for mature startups is still somewhat rough, meaning in many cases venture capitalists will likely have to wait quite some time before profiting from their investments.

The number of companies receiving seed funding fell 21 percent to 80 in the quarter, and the amount of funding dropped 38 percent to $243 million. The study said $1.4 billion in investments was split among 285 early-stage startups in the October-December period; $1.6 billion went to 305 early-stage startups in the year-ago quarter. Investors are clearly being cautious about which companies they finance, but interest remains in working with young startups.

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