In an otherwise softening environment for venture capital investing, New England seems to be holding its own.
New investments in start-up companies by venture capitalists declined 11 percent during the quarter ended Sept. 30, to $6.5 billion nationally. But in New England, new investments were down only slightly from the previous quarter, to $826 million, according to the quarterly MoneyTree Report from PricewaterhouseCoopers LLP and the National Venture Capital Association, based on data provided by Thomson Reuters.
Moreover, start-ups in New England are on a pace to buck another national trend by raising more venture funds in 2012 than in 2011.
“New England looks strong, particularly compared to the national numbers,” said Kevin Shaw, a partner in PricewaterhouseCoopers’s emerging company services practice in Boston. “If we have a good fourth quarter, we could surpass last year’s numbers.”
One explanation for the New England investing levels may be the large number of companies in the region that are developing the next generation of software applications, particularly enterprise-level applications used by businesses.
“Many companies are moving up to a new generation of software, one that is cloud-based and uses the software as service model,” said Adam Marcus, managing director of OpenView Venture Partners, a venture capital firm based in Boston. “That’s something New England firms are good at.”
The one red flag in the latest numbers, said Shaw, is the significant decline in the amount of so-called “seed” investments — money put into brand new companies. It was at half the level it was a year ago.
“First time investments in start-ups continues to go down,” he said. “This is not good news for the young entrepreneurs who are coming out of our universities.”
Shaw said that many venture capital firms may be choosing to put their money into companies where they had previously invested, rather than in altogether new businesses.
Tracy T. Lefteroff, global managing partner of the venture capital practice at PricewaterhouseCoopers US, said the trend of venture firms reducing their investments in new companies is true across the country.
“Venture capitalists have had negative returns for the last 12 years, so they aren’t getting the money that they once did,” he said.
In New England, biotechnology companies got one third of all the money invested by venture capitalists during the period, following by software businesses, at 29 percent.
The two single largest deals in New England were each in Cambridge biotechnology firms: bluebird bio Inc., which develops and commercializes gene therapies, raised $60 million; Foundation Medicine Inc., a medical diagnostics company, raised $42.5 million.
General Catalyst Partners, which invested in 14 deals, and Atlas Venture, which funded 11, were the two most active venture capital firms in the region. Both have offices in Cambridge. Of the 75 venture firms based in New England, 62 made less than 5 deals in the quarter, reflecting a general slowdown in venture capital investing nationwide.
Meanwhile, in the sweepstakes between Boston and the Big Apple, venture investing in companies in the New York metro area continues to decline steadily, after briefly eclipsing the Hub a year ago.
D.C. Denison can be reached at email@example.com.