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Venture capital for companies in the Maryland region drops nearly 27 percent

Technology IndustryInvestmentsPricewaterhouseCoopersBiotechnology IndustryChemical IndustryMarketing

Uncertainty over the economy contributed to a nearly 27 percent drop last year in venture capital funding for young companies in Maryland, Washington and Northern Virginia, the first decrease since 2009, according to a new report from PricewaterhouseCoopers.

Last year, venture capitalists invested $725.1 million in 164 deals in the area, down from $987.5 million for 163 deals in 2011.

On a percentage basis, the decrease in dollars was more than twice the national average for last year, when funding dropped 10 percent to $26.5 billion invested in nearly 3,700 deals, PricewaterhouseCoopers reported.

The region that includes Maryland may have been hit harder because it has more life sciences companies, said Mark Heesen, president of the National Venture Capital Association.

Investments in life sciences, which include biotechnology, have been suppressed partly because of regulatory issues, he said.

"A lot of venture capitalists just realized that the period between the time they funded a biotech company and the time it was able to get a drug successfully on the market was getting way too long and too expensive," Heesen said.

Venture capitalists could wait as long as 15 years to see a biotech product reach the marketplace, more time than they are willing to stick with an investment, he said.

The U.S. Food and Drug Administration has been moving more quickly with its pre-market approval process, Heesen added, which should improve venture capital funding for life sciences.

The region also saw a decrease in funding dollars because venture capitalists tended to invest in companies here during their earliest stages of development, which is less capital-intensive, said Brad Phillips, director of emerging company services for PricewaterhouseCoopers. But the number of deals financed in the region remains much the same.

Overall, the drop in venture capital investment here and across the country can be blamed on widespread uncertainty over the economy, election, taxes, and government policy and spending, Phillips said.

"Companies, investors or venture capitalists don't like to make capital investments in an uncertain environment," he said. "It's not that there isn't cash there. Companies have a record amount of cash sitting on the sidelines."

Whether funding will improve this year largely hinges on what happens in the next 60 days as Congress confronts the debt ceiling and spending cuts, he added.

There is at least one bright spot in the report: While biotechnology, clean technology and Internet sectors all saw a drop in venture capital, software had its best year in more than a decade.

Software companies nationwide received $8.3 billion last year in venture capital, a 10 percent bump over the year before and the most money since 2001, reported PricewaterhouseCoopers.

That includes $391 million invested in 66 software deals in Maryland, Washington and Northern Virginia. Biotechnology came in second in the region with $151.6 million in venture capital.

For the fourth quarter of last year, venture capitalists invested in 39 deals in the region, including 11 in Maryland. For instance, OpGen Inc. in Gaithersburg received $7.5 million in the quarter.

OpGen is a DNA analysis company founded about a decade ago at the University of Wisconsin before moving to Maryland in 2008. Its technology can map the whole genome and, for example, is used by government agencies dealing with bacteria outbreaks.

CEO Doug White said OpGen raised $17 million in venture capital during all of last year. The company, which employs 50 workers, plans to use the money to expand the commercial uses of its technology, with a focus of moving into clinical diagnostics, he said.

"We can always use more money, but we believe the funding we have will help us achieve our goals," White said.

eileen.ambrose@baltsun.com

twitter.com/eileenambrose

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