VC Activity Picks Up | New England investments hit a 10-year high, reach $1.1B
Charley Polachi, a Framingham-based recruiter for venture, private equity and technology firms, sees a major contrast between the firms he works with and the performance of the overall economy.
“I feel like I’m living in a parallel universe,” Polachi said.
Recent economic performance indicators have been mostly disappointing with bright spots here or there.
GDP growth has been insignificant, unemployment is hovering above 9 percent, and recent plummets in the stock markets have economists debating the prospects of a second recession.
But venture capitalists seem to be feeling relatively good. VC investment in New England is at a 10-year high, hitting $1.1 billion in 119 deals during the second quarter of this year, according to The MoneyTree Report by PricewaterhouseCoopers and the National Venture Capital Association (NVCA), which is based on data from Thomson Reuters.
Nearly 80 percent of VCs said in a recent Polachi survey that they were more confident about their industry than a year before. It was the biggest increase in optimism the firm has seen in the three years since it began doing the survey.
VCs provide economic benefits to the economy through creating wealth, jobs and new industries. In fact, about 11 percent of all private sector employment can be attributed to venture capital-backed companies, according to the NVCA and HIS Global Insight.
VCs are linked to the stock market, which is a vital exit market for them to cash in their investments, Polachi said, so when the prospects for IPOs look less than promising, VCs might be more conservative with their investments.
But Polachi said they also operate in a different sort of ecosystem, one that can look more positive than the general economy on a given day. The economy may not look strong now, but venture capitalists take the long view.
“They’re making bets that they don’t anticipate to pay off for three to seven years,” he said. “The investing has to go on in good times and it has to go on in less than good times.”
New England continues to be a top region in the nation for venture capital investments, second only to Silicon Valley.
Biotechnology companies in New England saw the most activity in the second quarter, a total of $372 million, about one-third of total VC investment in the region, according to PricewaterhouseCoopers.
Software companies took second place at $181 million in 29 deals and consumer products and services ranked third at $170 million in two deals.
The Polachi survey noted potential bad news for clean-tech and energy companies. Only 12 percent of respondents rated those companies as a hot growth area. While IPOs are the most talked-about way for VCs to collect returns on their investments, Polachi said that companies also size up prospects for mergers and acquisitions.
He said that New England companies tend to lean toward that strategy for exits, while Silicon Valley seems to prefer the IPO route.
“New England has become a shopping district and satellite center for big tech companies in Silicon Valley,” Polachi said. “We as a region have become more of a launch-incubate-sell, than a launch-to-IPO."
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