Venture Funding Drops Sharply in San Diego; Life Sciences Deals Predominate in Our Top 10 List

Xconomy San Diego — 

Venture capital investments in the San Diego region during the second quarter declined significantly—from both the same quarter of 2009 as well as the previous quarter, according to data released over the weekend by two rival surveys. The local downturn was in sharp contrast to the nationwide trend, which showed VC funding on the rise during the quarter.

Results of the MoneyTree Report for venture investments in San Diego startups largely coincided with San Diego regional data provided by Dow Jones VentureSource. Both surveys show that venture investments in biotechnology and medical device startups comprised the majority of the deals here, with venture funding for IT, software, and communications barely registering a pulse. It’s fallen so far, in fact, that I’m wondering what happened to San Diego’s tech sector, which was relatively robust a decade ago.

The MoneyTree survey, which was prepared by PricewaterhouseCoopers and the National Venture Capital Association, found that venture firms invested $170.6 million in 24 companies in the San Diego area during the second quarter. That was down 24 percent from the $225.8 million invested in 31 deals during the first three months of 2010, and a 33 percent decline from the $256.7 million invested in 26 during the second quarter of 2009. The MoneyTree Report is based on data provided by Thomson Reuters.

The Dow Jones survey found that $164.5 million was invested in 19 San Diego deals during the second quarter. That was a 17 percent decline from the $198.4 million invested in 23 deals during the previous quarter, and a 34 percent drop from the $249.9 million that went into 26 local deals during the same quarter last year.

“We don’t see the same growth in the San Diego market that we saw nationwide,” said Doug Regnier, a partner in the San Diego office of the Ernst and Young accounting firm.

Regnier estimated that VC funding in local life sciences startups accounted for more than 76 percent of the overall funding in San Diego during the quarter, based on the Dow Jones data. Funding for life sciences ventures accounted for more than 80 percent of the funding here, based on the MoneyTree data.

Regnier added that there was “virtually no funding for consumer services and business services” in San Diego during the quarter. There were a couple of tech deals worth noting though: Zeebo, which makes video game players, raised $13.5 million, and Imagine Communications, which specializes in streaming digital video technology, raised $10 million.

Here’s a list of the top 10 deals in San Diego, based on the MoneyTree list:

1. Sonexa Therapeutics, San Diego. Alzheimer’s drug developer. $37.23 million. Investors: Alta Partners, Domain Associates, Scale Venture Partners.

2. Astute Medical, San Diego. Medical diagnostics. $26.56 million. Investors: De Novo Ventures, Delphi Ventures, Domain Associates, Johnson & Johnson Development Corp.

3. Nereus Pharmaceuticals, San Diego. Cancer and other diseases. Investors: $20 million. Advent International, Alta Partners, Astellas Venture Capital, F. Hoffmann-La Roche, Forward Ventures, Gimvindus NV, HBM BioVentures AG, Pacific Venture Group.

4. Zeebo, San Diego. Wireless video game equipment. $13.50 million. Investors: Qualcomm Ventures, and undisclosed investor.

5. Tandem Diabetes Care, San Diego. Innovative insulin pump. $12.83 million. Investors: Domain Associates and undisclosed investor.

6. Aragon Pharmaceuticals, San Diego. Anti-endocrine cancer drugs. $12 million. Investors: Aisling Capital, The Column Group, OrbiMed Advisors .

7. Otonomy, San Diego. Novel drugs for inner ear disorders. $10.57 million. Investors: Avalon Ventures and undisclosed investor.

8. Imagine Communications, San Diego. Streaming Digital Media Technologies. $10 million. Investors: Carmel Ventures, Columbia Capital, Court Square Ventures.

9. Evoke Pharma, San Diego. Drugs for gastrointestinal tract diseases. $6 million. Investors: Domain Associates, Windamere Venture Partners, Latterell Venture Partners.

10. AltheaDx, San Diego. Improved diagnoses of pediatric and prostate cancers. $6 million. Investors: Telegraph Hill Partners.