venture102009
On the homepage
Food
Out There
Reusse's Turkey
NewsBreak
Venture investors shy away from state firms
Total quarterly venture-capital investments totaled only $26.4 million, Minnesota's worst showing since 1995.
Print this story
E-mail this story
Save to del.icio.us
Share on Facebook
Share on Digg
Minnesota business by the numbers
See Minnesota's top earning companies, CEOs and non-profits
More from Business
Try telling Minnesota start-ups that the recession is over.
The state posted its worst quarterly venture-capital performance in 14 years during the third quarter, with six local companies attracting only a combined $26.4 million.
That showing came despite a national uptick in venture capital dollars.
The figures come from the Money Tree Report by PricewaterhouseCoopers and the National Venture Capital Association and are based on data from Thomson Reuters.
The last time Minnesota failed to break the $30 million mark came in the third quarter of 1995, the first year of the MoneyTree report, when five companies received a total of $21 million. Nationally, venture-capital investment in the third quarter grew 17 percent to $4.8 billion from the previous quarter.
"It's not good," said Jay Hare, an analyst with PricewaterhouseCoopers in Minneapolis. "We didn't have tons of deals. Clearly, it was a weak quarter."
What's more, the amount of venture money placed into medical device and equipment companies -- the lifeblood of Minnesota's economy -- fell 6 percent nationwide from the previous quarter to $617 million.
Three of the six Minnesota companies that received funding were medical-related. One of them, VitalMedix Inc., recently moved to Hudson, Wis. The company, a University of Minnesota spinoff developing a hemorrhagic shock drug, raised $1 million, mostly from angel investors.
The largest local deal of the quarter went to a software company, eBureau LLC in St. Cloud, which raised $10 million from Split Rock Partners, Redpoint Ventures and Tenaya Capital.
The medical device industry continues to vex analysts. Normally, the industry is recession-proof, with investors eager to plow money into devices and treatments that can save or prolong lives. But investors have been pulling back.
"While the medical technology industry is facing one of the chilliest investment climates in years, it's hard to gauge how much of that is the result of macroeconomic conditions and how much is a change of industry-specific fundamentals," according to a recent report by Ernst & Young.
For instance, experts wonder how the debate over health care reform will play out on medical devices. The Senate Finance Committee recently passed a bill that calls for a $4 billion annual tax on medical device companies. Anticipating a cut in Medicare payments, hospitals are also scaling back their purchases of devices. St. Jude Medical Inc. of Little Canada recently warned investors of lower sales because of "macroeconomic factors coupled with the continued pressures surrounding health care reform [that] resulted in changes in purchasing behavior among some of our hospital customers."
The Food and Drug Administration is also likely to toughen its oversight of the industry.
In a conference call with reporters, Amir Nashat, a general partner in the Boston office of Polaris Venture Partners, expressed confidence that the industry still can attract investment, with only "gentle adjustments'' in venture capital spending.
Hare said the fourth quarter will be key. Normally, Minnesota rebounds after a weak quarter. But two consecutive quarters of declines combined with a surge in nationwide venture investments won't bode well for Minnesota, he said.
Thomas Lee • 612-673-7744
Recent Business stories
Canadian National locomotive engineers union threatens strike to begin on Saturday - October 19, 2009
Canadian National locomotive engineers union threatens strike to begin on Saturday - Canadian National Railway Co., one of North America's largest railroads, says it received notice from the union representing its locomotive engineers in Canada that they plan to go on strike Saturday. More
- Ponzi scheme suspect liked cars -- and his submarine
- 2 charged with running $190M Ponzi scheme
- Shoppers got a turkey deal
- 'Christmas creep' pushes shopping ever earlier
- Toyota to replace gas pedals on 4 million vehicles
- Feds put damper on American holiday ritual
- 3 state firms are accused of forging signatures
Blog: Patent Pending
Lights out at U energy conference. Irony police notified.
Just as Lawrence Kazmerski, a top official at the National Renewable Energy Laboratory, was about to give the keynote address at the University of Minnesota's annual E3 conference at the RiverCentre in St. Paul, the lights went out, bathing the audience in darkness and a deep sense of irony.
Comment on this story | Read all 7 comments | Hide reader comments