San Diego’s Slight Rebound in Venture Investing Reflects Broader Trends—Region’s Top Deals List

7/21/09Follow @bvbigelow

Following a nationwide trend, venture capital investments in San Diego region strengthened during the second quarter that ended June 30, but still remained well below funding levels at this time last year.

Regional data released by Dow Jones VentureSource shows VCs invested $208.8 million in 25 San Diego deals, a 40 percent decline from the $350 million that Dow Jones counted in 28 local startups during the same quarter last year. But it was still better than the first quarter of 2009, when Dow Jones counted $194.6 million in 15 deals. Nearly three-fourths of the total, or $154 million, was invested in 13 life sciences startups in San Diego, according to Dow Jones VentureSource. Another $50.1 million went to fund 4 information technology ventures in San Diego.

“For good or for bad, San Diego does tend to mirror the trends that we’re seeing on a national basis,” says Dan Kleeburg, an audit partner and the life sciences practice leader with accounting firm Ernst & Young’s San Diego office.

VCs put a total of $172.2 million into 22 startups in the San Diego region during the quarter, according to data released by the National Venture Capital Association, PricewaterhouseCoopers and Thomson Reuters. That was better than the previous quarter, when VCs put just $90.6 million into 15 local ventures—but a nearly 55 percent decline from the $379.6 million that went into 39 startups in San Diego during the second quarter of 2008.

The VC downturn seems to have leveled off, and companies that are near profitability or have a good story for getting to profitability in six to 12 months are getting attention, says Drew Senyei, managing director of San Diego’s Entreprise Partners Venture Capital. “Concept or early stage, highly screened and vetted plans are getting done, but with a ‘one and done’ syndicate concept,” Senyei tells me. “In other words, investors that are doing those deals want to make sure the companies have plenty of cash and do not have to go outside the initial syndicate in these difficult times.”

Avalon Ventures, which is among a handful of San Diego VCs that remain active, made nine venture investments during the quarter, says Kevin Kinsella, Avalon’s founder and managing member. Avalon made four new investments (one local tech startup and three out-of-town tech startups), and five follow-on investments (three local life science startups, one out-of-town life science venture and one out-of town tech venture). Avalon, which specializes in early stage investments, has done a similar number of deals in the previous two to three quarters. But Kinsella says, “Our willingness to back a new company is diminishing rapidly,” because Avalon has nearly finished investing the $150 million it raised for its eighth fund early last year.

See next page for the region’s top venture financings of the second quarter

PhotoThera (Carlsbad, CA) — $50 million
(Investors: De Novo Ventures,Delphi Ventures, Hamilton BioVentures (FKA Hamilton Apex Technology Ventures), Individuals, Solstice Capital,TheVertical Group, Warburg Pincus.)

Intellikine (San Diego) — $28.5 million
(Investors: Abingworth Management, Biogen Idec New Ventures, CMEA Capital, Novartis Venture Fund, Sofinova Ventures, U.S. Venture Partners.)

Par Accel (San Diego and Cupertino, CA) — $22 million
(Investors: Bay Partners, Menlo Ventures, Mohr Davidow Ventures, Walden International.)

SkinMedica (Carlsbad, CA) — $9.4 million
(Investors: Domain Associates, EuclidSR Partners, Fog City Fund, HealthCare Ventures, Montreux Equity Partners.)

Medsphere Systems (Carlsbad, CA) — $6 million
(Investors: Azure Capital Partners, Epic Ventures, Thomas Weisel Venture Partners)

Nirvanix (San Diego) — $5 million
(Investors: Intel Capital, Mission Ventures, Valhalla Partners, Windward Ventures)

MojoPages (San Diego) — $4.1 million
(Investors: Austin Ventures, individual investors)

Afraxis (San Diego) — $3.3 million
(Investor: Avalon Ventures)

Loop’d Networks (San Diego) — $800,000
(Investors: Tech Coast Angels, undisclosed investors)

Bruce V. Bigelow is the editor of Xconomy San Diego. You can e-mail him at bbigelow@xconomy.com or call (619) 669-8788 Follow @bvbigelow

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