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Venture Capital Investing Increases in 2010

by Mike Wilkinson on July 28, 2010

Last week, I attended MedVentures 2010, a regional, early stage investment and education conference focused on the rapidly growing medical technology sector sponsored by North Texas Enterprise Center for Medical Technology (NTEC) in Frisco, Texas.  Ten companies were selected to present their companies and ideas to a panel of angel investors and venture capital firms.

The kick-off speaker was a representative from PricewaterhouseCoopers (PwC) who presented the state of the U.S. venture capital investment community. According to the MoneyTree™ Report from PwC and the National Venture Capital Association (NVCA), venture capitalists invested $6.5 billion in 906 deals in the second quarter of 2010. This is a 34 percent increase in terms of dollars and 22 percent in number of deals compared to the first quarter of 2010.  The Life Sciences sector (biotechnology and medical device industries combined) “saw an increase in VC investing during the second quarter, jumping 52 percent in dollars and 36 percent in deals from the prior quarter to $2.1 billion going into 234 deals.”

The good news is that investments are trending upward from last year.  However, the VC community in Texas continues to lag drastically behind the two coasts.   In the first quarter of 2010, VCs invested in 21 deals in Texas, which represented just 2.75% of the total dollars invested in the U.S.

Another valuable message from the MedVentures conference was that most investors have little interest in pre-revenue companies. In addition, most said they would value a pre-revenue company to be worth no more than $3 million, regardless of the technology.

So what does all this mean?

If you have a startup company or product idea, you will have to rely on friends and family funds to get started. Once you begin to generate revenue, you then can begin to approach other sources of funding.   You also may want to approach the angel community for startup funds.  In Texas, there are a number of angel investors including North Texas Angel Network, Central Texas Angel Network, Houston Angel Network, Lone Star Angels, and the newly formed West Texas Angel Network.

At Paragon, we talk with inventors every week who are trying to get their product idea off the ground.   We advise them on the essential elements of a sound business plan and presentation.  We can make introductions into the investment community.  As an engineering firm, we can develop their prototypes and products and even incubate their companies to help them get started. However, we are not an investment firm.

Paragon has begun incubating its own products and ideas. Kewl Innovations — the first idea to go the distance – has developed a portable cooling device for insulin and other medication that requires strict temperature management.  Kewl was one of the ten companies to present at MedVentures last week.  We heard a lot of great ideas and appreciate the competition for the limited investment funds available.  We know by experience how difficult it is to raise funds in this economy and how little Texas is investing.  However, I still have hope that things will continue to improve.

I welcome good news, so please feel free to share!

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