San Diego’s Top 10 Third-Quarter Deals Reveal Slow Comeback in Venture Investing

Xconomy San Diego — 

[Corrected 10/20/09, 7:30 am. See below.]Venture Capital investing in the San Diego area has been slowly increasing since the fourth quarter of 2008, when venture investing in the area fell to an adjusted low point of $172.8 million and just 14 deals, according to Dow Jones VentureSource.

[Corrects amount invested and number of startups.]The latest data shows venture firms invested $248 million in 29 startups in the San Diego area during the three months that ended Sept. 30, according to Dow Jones VentureSource. That was the most venture funding San Diego has seen in nine months, but still well below VC investment levels before last year’s collapse of the capital markets.

A rival survey prepared by PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters, shows 32 companies in San Diego County getting $236.3 million.

“What we’re seeing is good modest growth; I would say sustainable growth,” says Dan Kleeburg, an audit partner at Ernst & Young’s San Diego offices who has been working with emerging companies in the life sciences space since the early 1990s. Kleeburg notes that a $62 million investment in V Vehicle, the San Diego-based automaker that has yet to take the wraps off its plans for a greener “fuel-efficient” car, boosted the local cleantech sector.

In an email, Kleeburg tells me: “Big picture, it’s impossible to deny that venture capitalists are being challenged on both sides—it’s a challenging environment to raise capital and a challenging time to deploy capital. Investors are being careful about investing in funds and VCs are being highly selective about the investments they make. Valuations are down and some VCs are waiting for them to come down even further. There is less competition for deals, which allows VCs more time to evaluate prospective investees and more leverage with the investment itself.”

Based on the Dow Jones data, Kleeburg also listed what he calls the top 10 “disclosable” deals in San Diego County during the third quarter that ended Sept. 30 (I take it by “disclosable” that he is hinting there are some other big deals that somehow remain under wraps):

V-Vehicle: $62.25 million in first-round venture funding for the San Diego-based maker of a small, environmentally friendly, fuel-efficient automobile.

Zogenix: $36 million in later-stage funding for the San Diego biotech developing drugs to treat central nervous system disorders and pain.

DriveCam: $19 million in later-stage funding for the San Diego IT and software developer of systems that record driving behavior and use software-as-a-service to improve the driving of commercial vehicle fleet operators.

Accumetrics: $16.5 million in later-stage funding for this San Diego medical device company, which has developed a diagnostic unit to help doctors assess the effectiveness of anti-clotting drugs.

BeneChill: $13.5 million in second-round funding for this San Diego medical device company developing a non-invasive cooling technology for treating cerebral ischemia, a blood vessel blockage in the brain.

Rayspan: $12.5 million in second-round funding for the San Diego-based communications and networking developer of compact antennas and other components made of composite materials and used in high-performance wireless communication networks.

Achates Power: $12.13 million in second-round funding for this San Diego-based cleantech company developing lightweight and more fuel-efficient diesel engine.

Medsphere Systems: $12 million in later-stage funding for a Carlsbad, CA-based healthcare IT and software company developing open source system for electronic healthcare record systems and services.

Nexus Dx: $9 million in first-round funding for this biotech startup developing biopharmaceutical products.

Helixis: $5.4 million in second-round funding for the medical device company developing nucleic acid analysis systems.

Kleeburg notes the exit environment also plays a role in the climate for venture-backed startups. “Many companies sidelined their IPOs in 2008. Today, we’re seeing signs of life in the IPO market; if momentum continues to build through the fall—and those companies that complete their IPOs are able to maintain a strong stock price—we should see an improvement in the venture capital space as well.”