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Stepping Down in San Diego: Venture Funding and Our Top 10 List of Fourth Quarter VC Deals

Xconomy San Diego — 

Venture investing in San Diego declined substantially during the last three months of 2010, according to additional data coming in today from Dow Jones VentureSource, and from the MoneyTree Report.

VentureSource found that venture firms invested $154.3 million in 21 San Diego startups during the fourth quarter of 2010. That was a 27 percent decline in capital and a 5 percent decline in deals from the $210.7 million that went into 20 deals during the same quarter in 2009.

The MoneyTree Report showed a 43 percent drop in venture capital invested during the fourth quarter in San Diego, with a 25 percent decline in deals. (Venture firms put $193.1 million into 26 startups in the quarter, down from $343.9 million in 32 companies during the same quarter in 2009).

Both surveys also showed an overall decline in San Diego venture funding for the year, with MoneyTree counting $846.9 million as a 10 percent decrease in capital invested from 2009 and VentureSource counting $655.8 million as a 28 percent drop from 2009. MoneyTree found that the number of deals in San Diego increased slightly (to 115 from 109) in 2010 while VentureSource said the number of deals declined (to 84 from 87).

“We are relatively flat year-over-year on the number of deals,” says Dan Kleeburg, a life sciences audit partner with Ernst & Young in San Diego. “On the value of deals, I agree that we’re down.” Kleeburg noted that San Diego’s strength lies in the life sciences sector and IT (especially networking and communications), which were weak areas for venture investing nationwide.

“Anecdotally, what I would say is there has clearly been a positive change in terms of the level of activity,” Kleeburg told me by phone this morning. “What we’re seeing, though, is that it still takes a lot of time to get these deals done.”

One explanation worth pondering comes in an Xconomist post today from Michael Greeley of Boston’s Flybridge Capital Partners. Greeley, who also is chairman of the New England Venture Capital Association, suggests that the political uncertainty surrounding the repeal of healthcare reform has made VCs reluctant to invest in new life sciences ventures.

However you slice it, the downturn is concerning—which means the 2011 venture outlook slated for tomorrow at the San Diego Venture Group’s monthly breakfast meeting should be an interesting discussion.

MoneyTree also provided a list of San Diego’s top 10 venture deals of the fourth quarter, with investors noted below as they are listed in the report.

—Fallbrook Technologies, $39.2 million, Emerald Technology Ventures AG, NGEN Partners, Robeco Private Equity, and undisclosed investors.

—aTyr Pharma, $23 million, Alta Partners, Cardinal Partners, Domain Associates, Polaris Venture Partners.

—Genomatica, $21.3 million, Draper Fisher Jurvetson and undisclosed investor.

—Aires Pharmaceuticals, $20 million, MPM Capital, ProQuest Investments.

— EMN8, $12.2 million, Allegis Capital (aka: Media Technology Ventures), Sid R. Bass Associates.

— Ceregene, $11.5 million, Hamilton BioVentures, Investor Growth Capital, MPM Capital.

—Kyriba, $10.6 million, Iris Capital Management, SAS Investors, Seventure Partners.

—Nirvanix, $10.4 million, Intel Capital, Mission Ventures, Valhalla Partners, Windward Ventures.

—Ortiva Wireless, $8 million, Artiman Ventures, Comcast Interactive Capital, Intel Capital, Mission Ventures.

—Verdezyne, $6.3 million, Monitor Venture Management, OVP Venture Partners, and undisclosed investor.

The surveys done by VentureSource and the MoneyTree Report (which is prepared by the National Venture Capital Association, PricewaterhouseCoopers, and Thomson Reuters) don’t line up because each uses different sources and methods to collect and count venture deals. VentureSource ranks the $23 million invested in aTyr Pharma as the biggest San Diego deal in the fourth quarter. MoneyTree counts Fallbrook Technologies’ $39.2 million as its No. 1, but does not include a $10 million investment in Histogen listed by VentureSource.