Those who watch San Diego’s venture capital trends say it’s tough to predict what 2012 might hold. If this year is anything like last, maybe there will be fewer deals worth more dollars. Maybe the anticipated Facebook initial public offering will spark some excitement among investors. And maybe local incubators will buoy San Diego companies in a way that sets the region apart from the rest of the nation.
“These things go in ebbs and flows. There are so many things that impact the venture capital market, there are a lot of factors that go into what gets funded,” said Bill Molloie, partner and the head of PricewaterhouseCoopers’ pharmaceuticals and life sciences practice in San Diego.
Even how VCs get their money affects how they eventually invest, he said. “If I have to step back, there has not been a significant change in deals or dollars. The life sciences sector in San Diego continues to get the lion’s share of investments, and proportionately it’s growing. Early-stage and startups continue to be relatively strong in San Diego.”
Valerie Foo, a San Francisco-based research manager for Dow Jones VentureSource, said San Diego has a strong foothold in its most active investment areas: health care, with $540 million raised in 48 deals in 2011 by VentureSource’s tabulations, and information technology, with $316 million raised in 23 deals last year.
“I wish I knew what to predict for 2012,” Foo said. “I’d like to see how it plays out. I would say 2011 was overall a pretty good year, and I hope San Diego’s 2012 investments would echo overall U.S. investments. We’ll have to wait and see.”
Foo cited San Diego incubator EvoNexus as evidence of the region’s commitment to investing in innovation. The free startup business incubator by the nonprofit technology group CommNexus has an office in the UTC area and a new one in downtown San Diego. Its companies have raised about $55 million in total venture funding since the incubator’s start about two years ago.
“Such support is really conducive to a healthy VC environment,” Foo said.
PricewaterhouseCoopers’ annual MoneyTree survey looks at national venture capital investments. The San Diego office then distills out the local VC figures for further analysis and compiles its own subsequent report, due out within a couple weeks, according to Molloie.
PricewaterhouseCoopers’ numbers show 104 venture capital deals in San Diego totaling $829 million in 2011, as compared to 126 deals locally totaling $872 million in 2010, said Molloie. Another way to look at it: each deal in 2011 was worth roughly $8 million, as compared to a per-deal worth of roughly $7 million in 2010.
Dow Jones’ VentureSource report for San Diego metro derived a different quantity of deals and dollars, but likewise concluded that deal activity was down, but per-deal dollars were higher. The VentureSource data shows 87 deals raised $975 million in 2011, versus 92 deals raising $817 million in 2010, according to Dow Jones spokeswoman Kim Gagliardi.
Molloie said his industry-by-industry analysis shows that 66 percent of San Diego’s VC deals and 64 percent of the dollars went to life sciences in 2011, as compared to local life sciences gaining 61 percent of the deals and 63 percent of the dollars in 2010. Those numbers become more striking when compared against the national trend: in both 2010 and 2011, life science companies nationwide attracted about 27 percent of the VC dollars, but only 21 percent of the deals in 2011 as compared to 24 percent of the deals in 2010.
“Nationally, the number of life sciences (companies) funded went down — in San Diego it went up,” Molloie said.
San Diego’s life science companies likewise dominate VentureSource’s metrics for 2011, particularly in the fourth quarter. Still, the top deal-getter in the fourth quarter was a software company: San Diego’s DriveCam raised $85 million in a late-stage round. The company makes video-based driver safety programs used by commercial fleets. The investment capital came from New York-based private equity firm Welsh, Carson, Anderson & Stowe.
The other fourth-quarter 2011 VC deals in San Diego cited by VentureSource were Rempex Pharmaceuticals, which reportedly raised $67.5 million; gaming manufacturer Razer USA, raising $50 million; Roka Bioscience, at $47.5 million; Elevation Pharmaceuticals, at $30 million; Sotera Wireless, at $12.2 million, and medical software company Perminova, at $7 million.
VentureSource’s Foo noted the industries that gain the most venture capital are not necessarily more meritorious than other industries in the region.
“A lot of biopharmaceutical companies are capital intensive, so they’re going to attract more dollars,” she said, noting that the process of advancing a drug to market is long and expensive. “It’s a reflection of their need rather than a reflection of an industry’s worth.”
From Molloie’s local vantage, he sees strong interest in early-stage seed deals. Venture capitalists seem to be attracted to companies with strong intellectual property and assets, and strong, knowledgeable management teams, he said.
“It’s a combination of having the experience, management team, and a business plan to leverage those investments,” Molloie said.