Venture Capital Report: 1998

1998

was another successful year for entrepreneurs and investors in the Research Triangle region. Seventy-three venture capital investments were reported totaling $249,557,000--a 59% increase in number of deals and a 49% increase in total venture capital funding raised compared to 1997. Fifty-eight different companies received investments in 1998 compared to 46 in 1997. Sixteen of these companies raised multiple rounds of financing.

Begun in 1990, the CED annual venture capital survey is an indicator of capital availability and of entrepreneurial activity; The survey excludes LBO, MBO and acquisition transactions.

Among the companies receiving venture capital investment in 1998 were:

3D Ultrasound a4 Health Systems Aerial Images American Sanitary Inc. Biolex Bonita Software Celotek, Inc Cogent Neurosciences, Inc Corpex Technologies Inc. DentalCare Partners Engineous Software Inc. Encelle Inc. EuroCorpex Ganymede Software Insect Biotechnology Inc. Intecardia Interactive Magic Intrasoft Inc. Koz. Inc. Marathon Group Medacoustics Micell Technologies MicroMass Communications Microcosm Technologies NetGift Registry Novalon

OpenSite Technology Orologic Paradigm Genetics Pozen, Inc. ProMedex Peracom Protein Delivery Inc. ReadyCom Inc. Red Hat Software Inc. Relativity Inc. Sanguinex SCiQuest Inc. Secant Network Technologies Sedona Healthcare Southern Assisted Living Inc. SpectraSite Communications Tavve Software Technauts Inc. Total Sports Triangle Biomedical Sciences United Emergency Services United Therapeutics Corp. Unitive Vanishing Point Virtus Corporation Volumetrics Medical Imaging

Overall

:
A total of $249,557,000 was invested in 58 Triangle companies in 73 fundings. 1998 results show:

• 49% increase over the 1997 total of $167,430,000.

• 59% increase in number of deals

• 80% of 1998 investors located outside of North Carolina versus 63% in 1997, 65% in 1996 and 87% in 1995.

• Healthcare investments were up 222% over 1997 -- the largest increase by industry.

• 44% of all capital invested in the Triangle went to Software/Internet/Information Technology companies which represented 35% of the total deals done.

• Total funding for Life Science companies decreased by 23% while the number of deals increased by 20%

• Average deal sizes slightly lower than 1997 --$3,334,000 in 1998 vs. $3,640,000 in 1997.

• Median deal at $2,000,000, slightly below 1997 median of $2,600,000.

• Seventeen companies raised at least $5,000,000 and the top six companies accounted for 37% of the total.

The Research Triangle received 82% of all venture capital invested in North Carolina in 1998.

The top six fund raisers for 1998 were::

1. SpectraSite: Telecommunications	$28,000,000
2. Intecardia: Healthcare	$18,700,000
3. Micell Technologies: Industrial/Bus Svcs	$15,000,000
4. SciQuest: Internet	$11,000,000
5. Unitive: Software/Info Tech	$11,000,000
6. Southern Assisted Living: Healthcare	$11,000,000

Software & Information Technology

• Investments in Software & Information Technology companies accounted for $109,367,000 -- 44% of 1998's total.

• The increase was driven by strong funding for Internet companies, which raised $49,700,000 -- 45% of the category total.

Life Sciences

• Investments in Life Science companies raised $50,175,000 in 1998, a decrease of 23% from 1997's $65,220,000. The number of deals increased from 14 deals in 1997 to 17 deals in 1998.

• Biotechnology accounted for $32,300,000, Pharmaceuticals $14,900,000, and Medical Devices the remaining $2,975,000.

Healthcare

• Healthcare funding increased 222% to $39,938,000. Eleven deals involving only seven companies accounted for the entire total.

Telecommunications & Industrial/Business Services

• Telecommunications funding totaled $31,653,000, driven by five rounds in only two companies.

• Five Industrial/Business Services investments accounted for the remaining $18,424,000.

Investors & Timing

• Approximately 90 different investors --67% more than in 1997 -- participated in Triangle deals.

• Out-of-state investors continue to play an important role in the Triangle. Approximately 80% of the investors 75% of the capital came from out of state.

• While the number of investments was evenly spread throughout the year, amounts varied widely with second quarter funding at $73,875,000 and fourth quarter with only $50,183,000 invested.

1998 investors in Triangle companies included:

3D Ultrasound A.M. Pappas & Associates Adams Capital Management LP Allied Capital Aurora Funds BancBoston Capital Benchmark Capital Bessemer Venture Partners Bioscience Investment Fund Canaan Partners Cardinal Health Partners Centennial Ventures CMG @ Ventures Cordova Ventures Decha Capital Delphi Ventures Diatech Ltd. Encompass Ventures Endeavor Capital Management First Boston Corp. Franklin Street Fusion Ventures Golder Thoma Cressey Rauner Gray Ventures Hamman Rush & Co. IAI Ventures Innotech - UK Institutional Venture Partners Intersouth Partners InterWest Partners J.H. Whitney & Co. JAD Capital Inc. Jefferson Capital Fund Ltd. Jerome Capital Johnson & Johnson

Kitty Hawk Capital Kleiner Perkins Caufield & Byers McConnell Venture Partners Motorola N.C. Bioscience Fund N.C. TDA NationsBank Capital The NC Enterprise Fund Noro-Moseley Partners Oakwood Investors Pacific Venture Group Patricof & Co. Ventures Inc. Penny Lane Advisors Piedmont Venture Partners Pioneer Capital Corp. Piper Jaffray Ventures Inc. PNC Equity Management Polaris Venture Partners Primus Venture Partners Renaissance Ventures S.R. One Ltd. South Atlantic Venture Fund Southeast Interactive Funds Sprout Group Telso Venture Partners Timark Partners LP TL Ventures Trans Atlantic Tech. Fund Trinity Ventures TriState Investment Group UNIFI Corp. Wakefield Group Waller-Sutton Media Partners Waterside Capital

For more information about CED or Venture '99 the 16th annual Research Triangle venture conference, April 28-29, 1999, visit www.cednc.org or call 919.549.7500.

The 1998 Research Triangle Venture Capital Survey data was compiled for the Council for Entrepreneurial Development by Matt Karash, Kenan-Flagler Business School. The survey is annually published by the CED, a non-profit entrepreneurial support organization located in the Research Triangle Park.