MIA: Venture Funding for Science Start Ups
If, as we've been told, good investment opportunities are found in companies based on science and technology, then you would think investors would be putting more money into new companies based on science and technology. If it were only true.
Just the opposite is happening. "Angel" investors — those who traditionally fund start ups — have pulled back their support for entrepreneurs. A report published in late October by the Center for Venture Research at the University of New Hampshire says only about a quarter of angel investments in the third quarter of 2010 went to seed- and first-round funding. By comparison, in 2009, about a third (35%) and in 2008 almost half (45%) of angel funding went into early-stage investments.
Last quarter more than half (56%) of angel investments, according to the report, funded company expansion rather than start up. The report authors attribute this shift to the need for angels to protect existing investments in their current portfolios, a need made more urgent as the economy continues to stall.
Venture capital (VC) investors, those who normally fund companies in their expansionary stages, have also pulled back in the third quarter of 2010. Both the MoneyTree report by PriceWaterhouseCoopers and National Venture Capital Association and Dow Jones VentureSource show VC companies investing less money in the third quarter of 2010 compared to the same period last year. Science-based companies, such as biotechnology and medical device developers, were among those feeling the pinch.
There are a few hopeful signs, however. While third quarter investments from angels and VCs were down from last year, Dow Jones Venture Source says VC investments for the year so far are up compared to 2009. And Thompson Reuters says that the amount of money raised by VC companies in the third quarter increased compared to the second quarter of 2010.
In June 2010, Lenard Marcus, investment manager of the Edison Venture Fund, told a conference of angel and VC investors in Washington, D.C. that this is "no time for the venture community to sit on the sidelines." By the end of September, however, the sidelines seem to have gotten only more crowded.