New England Venture Activity Picks Up Slightly in Second Quarter, but Still Nowhere Near 2007 Levels

7/21/08Follow @wroush

Second-quarter venture activity in the New England region recovered somewhat after a tepid first quarter—but was still down significantly compared to the same period a year ago, according to data released over the weekend by Dow Jones VentureSource.

Private equity investments by New England venture firms totaled $714 million for the quarter, a 16 percent increase over the first quarter’s disappointing $615 million (the poorest performance since mid-2005). But, reflecting the national trend, New England startups collected quite a bit less (23 percent) in the second quarter of 2008 than they did in the second quarter of 2007.

The declines weren’t uniform across all industries, however. Healthcare helped to drag down the statistics the most, with 21 deals worth a total of $299 million in 2Q08, compared to 38 deals worth $408 million in 2Q07. Information technology fared just as poorly, with 34 deals in the quarter worth $226 million, compared to 58 deals worth $423 million in 2Q07. But energy and utility startups were hot—they attracted 6 funding rounds worth $28 million in the second quarter this year, compared to exactly zero a year ago. Startups offering business and financial services and industrial goods and materials also saw increased venture interest.

Interestingly, the region’s biggest venture rounds for the second quarter tended to be significantly larger than the first quarter’s leading rounds. While only four of the top ten financing rounds in 1Q08 broke the $20 million mark (Mascoma, Reveal Imaging Technologies, Virtual Iron, and Vlingo), all of the top 10 deals in the second quarter were for $25 million or more. Here’s a list:

Company City Amount Investors
Enlight Biosciences Boston $39 million Eli Lilly, Merck, Pfizer, Puretech Ventures
Aspen Aerogels Northborough, MA $37 million Arcapita Ventures, Lehman Brothers Venture Partners, Reservoir Capital Group, RockPort Capital Partners
Concert Pharmaceuticals Lexington, MA $37 million Flagship Ventures, Greylock Partners, Mediphase Venture Partners, New Leaf Venture Partners, Skyline Ventures, SR One, Three Arch Partners, TVM Capital, Undisclosed Private Equity Investor, Westfield Capital Management
EnVivo Pharmaceuticals Watertown, NH $35 million Fidelity Biosciences
Segway Bedford, NH $35 million Credit Suisse Customized Fund Investment
Agios Pharmaceuticals Boston $33 million Arch Venture Partners, Flagship Ventures, Third Rock Ventures
Constellation Pharmaceuticals Cambridge, MA $32 million Column Group, Third Rock Ventures, Venrock
OmniGuide Cambridge MA $25 million 3i Group, Electro Scientific Industries, Gainesborough Investments, Individual Investors, Psilos Group Partners, Stata Venture Partners, Westbury Partners
Retail Convergence Boston $25 million Breakaway Ventures, General Catalyst Partners
Stromedix Cambridge, MA $25 million Atlas Venture, Bessemer Venture Partners, Frazier Healthcare Ventures, New Leaf Venture Partners, Red Abbey Venture Partners

While anyone who follows the news about venture-backed startups in New England will see some familiar names coming up again and again, the VentureSource data indicate that New England companies actually have connections with a large number of venture firms nationwide, and don’t seem to depend too heavily on a small cluster of firms, as startups in some other regions do. The eight firms most active in the region, listed below, were involved in only 27 of the region’s 76 funding rounds (not accounting for overlaps).

Most Active Venture Capital Firms Investing in New England, 2Q08

Firm City # of Deals
General Catalyst Partners Cambridge, MA 5
Atlas Venture Waltham, MA 4
Flybridge Capital Partners Boston 3
New Enterprise Associates Menlo Park, CA 3
Matrix Partners Waltham, MA 3
Lehman Brothers Venture Partners New York 3
Flagship Ventures Cambridge, MA 3
Charles River Ventures Waltham, MA 3

Dow Jones VentureSource rival PricewaterhouseCoopers MoneyTree also released a quarterly summary of venture activity over the weekend, using data provided by Thomson Reuters. The numbers in the two reports don’t match up precisely; for the New England region, the quarter-to-quarter shifts evident in the MoneyTree data are less dramatic than those in the VentureSource data. But the trend lines are the same. According to the MoneyTree report, New England firms raised $822.9 million in venture capital funding in the second quarter, up 5.5 percent from the first-quarter total of $779.9 million, but down 6.1 percent from 2Q07′s strong $875.9 million total.

Wade Roush is a contributing editor at Xconomy. Follow @wroush

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