A new report shows that venture capital investments in New England in the third quarter were 10.6 percent lower than a year earlier, but the region remained second only to Silicon Valley on that front, with $626.2 million pumped into New England companies in 94 deals.
Rhode Island ranked third among the six New England states, with $27.5 million invested in RenaMed Biologics Inc. and an undisclosed sum invested in Neurotech Pharmaceuticals Inc. Both companies are based in Lincoln, but RenaMed has announced plans to move its headquarters to Westborough, Mass.
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Ian Carver, executive director of PricewaterhouseCoopers Entrepreneurial Services Center, which helped in the research for the new report, said RenaMed’s deal was a success – “the largest single venture capital investment a Rhode Island company has received in five years.”
And the above-mentioned $27.5 million is only part of the investment; RenaMed closed a $40 million deal, but the rest of the money will only come in as certain milestones are reached.
Rhode Island should worry, however, about the pattern of companies leaving the state after venture-capital infusions, Carver said.
“The thing I would be concerned about is keeping your companies there,” he said. “RenaMed is moving to Massachusetts and Cyberkinetics, a company started out in Rhode Island, is another example of a company moving out of the state.” (Though still affiliated with Brown University, it moved to Massachusetts in 2003.)
“I think good technology is coming out of Rhode Island. It’s just not keeping the companies there. They get funding and then move.”
Carver said companies’ main reason for leaving the state appears to be the need for qualified workers. “The base of people you need to build your company are [in Massachusetts],” he said.
For RenaMed, an additional draw was a $2.3 million loan from the Massachusetts Emerging Technology Fund, which helps technology-based businesses to relocate and expand in the state. But according to Richard A. Andrews, chief business officer of RenaMed, although Massachusetts did offer a broader array of qualified employees, the main reason for the move was space.
“There was an opportunity to get more manufacturing space,” Andrews said. “If there had been space [in Rhode Island], we’d be staying here.”
Besides highlighting Rhode Island’s retention problem, the RenaMed deal also illustrates the growing strength of the biotechnology sector in the region, Carver said. In the third quarter, it accounted for 17 deals and $223.4 million in investment in New England, or 39 percent of the region’s total venture capital funding.
But, although investment in the sector has held steady, with 16 deals totaling $211.1 million in investment in the first quarter, and 16 deals totaling $174.8 million in the second quarter, Carver said that what allowed it to lead in the latest quarter was a surprise drop in software investments.
“It dropped off so dramatically,” he said. “In the third quarter, it dropped to just $85 million, and usually software is the leading sector. That was big, that it dropped that much in a quarter.”
In the first quarter, the software sector had 33 deals totaling $273 million (including a $100 million deal), and in the second quarter it had 31 deals totaling $171.9 million.
But Carver said it was too early to discount the industry.
“What will happen in quarter four will be very interesting to see,” he said. “It’s a little too early to say that it’s dead.”
Aside from the types of industries attracting investments, the research also found a change in the stage of businesses that were being considered.
“There was a swing in New England to earlier stage investment, which is a good thing,” Carver said. “Venture firms have raised new funds and are putting that to work in early-stage companies.”
But Carver said the biggest thing the research showed was much simpler.
“Overall, venture investment is stable, and that’s a good thing for the region,” he said. “I think venture investment will be up in 2006 from 2005.
The RenaMed Deal
For RenaMed Biologics Inc., founded in 1995 to commercialize the research of Dr. H. David Humes, a professor at the University of Michigan Medical Center, the $40 million in “mezzanine” financing secured in September is key to moving the company to the next level.
RenaMed is developing a “bio-replacement” therapy to temporarily replace lost kidney functions in intensive-care unit patients with acute renal failure and thus help them survive the crisis and recover fully.
In 2005, RenaMed entered into a strategic collaboration with Genzyme Corp. to jointly develop the technology, and the product is currently in a second Phase 2 trial.
The $40 million in venture capital, $27.5 million of which was provided upfront, will support the clinical development process through Phase 3, the company has said, and it will also help with the buildout of RenaMed’s new headquarters and manufacturing facility in Westborough, Mass.
TVM Capital and Lurie Investments co-led the financing and were joined by several new investors, including MDS Capital, Merlin BioMed Group, and TSC BioVenture Capital Corp.
Existing investors who also participated in this round included Apjohn Ventures Fund, BD Ventures (Becton Dickinson), Bio*One Capital (of Singapore), and NorthCoast Technology Investors.
