Report: Area venture-capital investment strong

Venture-capital investment in the Philadelphia region in the first quarter was the most since the second quarter of last year, driven by strong interest in biotechnology and the life sciences.

Venture firms poured $164 million into 24 local companies for the three months ended March 31. In comparison, 25 local companies raised $230 million during the second quarter of 2006.

In fact, not since 2001 when venture firms invested $182.2 million in 25 businesses has a first quarter been as strong, according to a quarterly survey released yesterday.

Two local companies, Ception Therapeutics Inc. and Locus Pharmaceuticals Inc., raised $39.7 million and $30.2 million, respectively, according to the MoneyTree survey by PricewaterhouseCoopers and the National Venture Capital Association based on data from Thomson Financial.

Ception, in Malvern, which licensed a late-stage biologic compound to treat inflammatory conditions from a large unidentified pharmaceutical company, said it raised $63 million as of Jan. 30. MoneyTree data reflects the amount received in a quarter, not the total amount committed.

Locus Pharmaceuticals, a Blue Bell computational drug-design company, is developing treatments for cancer and inflammation and plans to use the proceeds to advance more drug compounds into human clinical trials.

"It was a strong quarter," said Albert Piscopo, partner in the Philadelphia office of PricewaterhouseCoopers, who oversees the venture-capital practice. "The average deal size was pretty consistent with 2006. Investments were largely in expansion-stage companies. Unfortunately, the amount of money funded in early-stage companies was low in the Philadelphia region."

Nationally, venture capitalists invested $7.1 billion in 778 deals, a 13 percent dollar increase from the previous quarter and an 11 percent increase from the same quarter last year.

Investments in later-stage companies had the most significant growth, with $3 billion invested in the first quarter, a 57 percent increase over the previous quarter and the highest amount invested in later-stage companies since the fourth quarter of 2000.

Funding for seed and early-stage companies declined 30 percent in the quarter to $1.1 billion to 259 firms, a 26 percent decline in deals.

Life sciences and biotechnology was the industry that attracted the most investment, with $2.6 billion invested in 198 deals. Medical devices also experienced strong growth, with $1.1 billion going into 96 deals, up 60 percent from the prior quarter.

Investments in "clean technology" including alternative energy, pollution and recycling, power supplies and conservation jumped 41 percent in investments over the fourth quarter to $264 million in 23 deals.

"Industrial energy and biofuels is clearly an area the venture capitalists across the country are taking note of and putting significant dollars into," said Steven Hamilton, who heads the technology practice at PricewaterhouseCoopers in Philadelphia.

Locally, biotechnology firms raised $70 million, or 42.7 percent of investments in the quarter.

The next-strongest sector, capturing 24.1 percent of funds, was industrial and energy.

Cobra Wire & Cable Inc., a Hatboro maker of insulated wire and cable for electrical applications and devices, raised $24.6 million. In early 2007, Fulton Capital partnered with existing management to acquire 100 percent of Cobra assets.

Biofuels Co., Philadelphia, received $15 million for biofuel manufacturing from DFJ Element L.P., and another an undisclosed venture firm. DFJ Element, with offices in Radnor and Menlo Park, Calif., declined to say what Biofuels was working on, or even where, citing competitive reasons.

Software businesses in the region raised 21.6 percent of all local venture investment, with $13.5 million going to Beyond.com Inc. The King of Prussia provider of online employment software runs a network of more than 15,000 employment Web sites and job portals, such as PhillyJobs.com.

Quarterly venture-capital investment has fluctuated between $5 billion and $7 billion over the last five years. "This quarter marks the first breakout from that range since the dot-com era," said Darrell Pinto, who heads the research team at Thomson Financial.

"The venture industry is still showing strong interest in Web 2.0 companies, with quarterly investing at the highest level in five years," said Tracy Lefteroff, global managing partner of PricewaterhouseCoopers venture-capital practice, referring to firms involved in moving all kinds of software from the desktop to the online world.

"Four of the 10 top deals this quarter can be classified as Internet-specific deals," Lefteroff said. "We expect this area to remain strong for the foreseeable future as the promise of online video and the continuing interest in social networking and online gaming continue to keep the consumer and the industry's attention."