Deal brings R.I. venture funding to $51M through 3Q

NEW YORK – Rhode Island had one venture-backed financing for $3 million in the third quarter, according to the Quarterly U.S. Venture Capital Report released recently by Down Jones VentureSource.
That deal involving biopharmaceuticals pushed financings in the state for the first nine months of this year to $51.27 million. In comparison, there was only one venture-capital deal valued at $2.68 million completed in the first three quarters of 2007.
In the second quarter of 2008 alone, three Rhode Island companies raised investments with a total value of $37.25 million.
In New England, the value of venture financings declined 23 percent year over year in the third quarter to $769 million on 78 deals.
Meanwhile, venture capitalists nationwide continued to rein in investments in U.S.-based companies as the economy weakened, the quarterly report said.
The third quarter of 2008 saw $7.37 billion in venture capital invested into 583 deals, 7 percent less than the $7.94 billion put into 673 deals during the same period last year. It is the second consecutive quarter of year-over-year declines.
“Clearly, the current economic crisis is already impacting the venture industry, which has traditionally been relatively insulated from fluctuations in the broader economy,” said Jessica Canning, director of global research for Dow Jones VentureSource. “With the IPO market likely to be shut down for some time, venture capitalists are pulling back on investments in technology companies as well as in areas like business and financial services and media, content and information that are likely to suffer from a decline in advertising and enterprise spending. At the same time, VCs are allocating more resources to energy deals, which stand to benefit from a shift in federal and state energy policies.”
Most notably, the data showed that investments in the energy and utilities industry reached a record $1.18 billion in 32 deals during the third quarter of 2008, up 90 percent from the $620 million invested in 35 deals during the same quarter last year.
Eighteen deals in the renewable energy category accounted for a record $1.08 billion in investment with the majority of that capital going to solar companies.
“While there are a relatively small number of deals being done for solar power and other renewable energy companies compared to traditional VC areas like software and IT, they’re attracting huge amounts of capital and that’s to be expected,” said Canning.
One of the top venture deals in the third quarter belonged to a solar company, SolarReserve of Santa Monica, Calif., which raised $140 million in its second round.
Figures show that the information technology industry saw deal flow fall to its lowest point in more than a decade, dropping 21 percent from 342 deals in the third quarter last year to 270 in the most recent quarter.
Likewise, IT investments dropped 21 percent from $3.44 billion to $2.73 billion year-over-year. Software accounted for the bulk of investment with $1.15 billion invested in 125 deals, down 13 percent from the $1.32 billion put to work in 149 similar deals during the same period last year.
For the first time in nearly three years, the information services sector saw a decline in interest from venture capitalists, with $501 million put into 64 deals, 11 percent less than the $561 million put into 83 similar deals during the third quarter of 2007. Information services include many of today’s “Web 2.0” companies, most of which rely on advertising as a source of revenue, Dow Jones VentureSource said.
The Web-heavy consumer services industry also saw investment pull back, declining 47 percent from $286 million to $151 million in the most recent quarter while deal count fell from 32 to 20. The travel and leisure sector (down 79 percent to $28 million) accounted for most of the decline.