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Venture investors splurge in New England

$1.1b for quarter is most funding seen in a decade

By Kaivan Mangouri
Globe Correspondent / July 20, 2011

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Venture capital investments in New England companies hit the highest dollar level in a decade, with $1.1 billion netted in the second quarter.

The sheer number of completed deals - 119 - was the highest for a single quarter since 2008, with most of the investments flowing to software, life sciences, alternative energy, and Internet companies. Those industries fueled double digit growth in venture investments nationwide, according to the MoneyTree Report, to be released today by PricewaterhouseCoopers and the National Venture Capital Association, with data provided by Thomson Reuters.

Investments nationwide increased by 19 percent, representing the third consecutive quarter of growth, as venture capitalists completed 966 deals worth $7.5 billion. Life sciences companies accounted for much of the growth, increasing 37 percent in dollars and 12 percent in number of deals. Venture capital investment is projected to surpass $26 billion across the country this year.

New England companies accounted for 15 percent of the venture capital dollars invested nationwide, up from 11 percent in the previous quarter. The largest deal in the nation during the quarter was for a New England company: $165 million invested in CSN Stores LLC, an online retailer based in Boston.

The region is well-positioned for growth in venture capital activity, said Michael Greeley, former chairman of the New England Venture Capital Association and a current partner at Flybridge Capital Partners in Boston.

“What Boston has had for a long time, and is very difficult to displace, is its vibrant life sciences sector and educational facilities that are second to none,’’ Greeley said. “The important thing to note is that [the growth] isn’t simply life sciences. . . . It’s not over exuberant, but we’re seeing interest in multiple technologies and geographies as well.’’

More than half of the New England deals struck in the second quarter were to seed early-stage companies, as optimism about start-ups grew, said Ned Goss, director of emerging company services at PricewaterhouseCoopers.

“It’s all about exits, and it’s all about return,’’ Goss said. “The [merger and acquisition] market has picked up dramatically, and the IPO market is coming back. As those two exit opportunities improve, then the venture capitalists can show returns.’’

It may be difficult to maintain the growth in investments, however. Capitalization is lagging as institutional investors - the pension funds and university endowments that back venture capital funds - remain reluctant to jump back into the game, said Mark Heesen, National Venture Capital Association president.

Growth at the rate experienced in the second quarter is not sustainable when the dollars coming into the funds are not matching the dollars invested in companies, he said. “Venture capital investment has certainly exceeded the venture capital raised, and that’s a trend that has to reverse at some point,’’ Heesen said.

Kaivan Mangouri can be reached at kmangouri@globe.com.