For the first time since 2009, venture capital financing for companies in a region including Maryland has dropped; however, the number of deals receiving funding has remained stable. While venture capitalists spent about $987.5 million on 163 deals, investment fell by close to 27 percent to $725.1 million on 164 deals. According to PricewaterhouseCoopers, nationwide venture capital funding fell by approximately 10 percent to $26.5 billion during the yearlong period. This accounted for just under 3,700 deals.
Experts say that the strong presence of life science companies in Maryland and the rest of the area has likely contributed to the drop in funding for entrepreneurs. According to the head of the National Venture Capital Association, issues with government regulations have put a damper on investment in biotechnology and other life science-oriented businesses. He explained that many investors are hesitant to invest in biotech companies, as it can take well over a decade for such businesses' product to obtain government approval and hit the market. However, he noted that investment for such companies could pick up again as the FDA speeds up its pre-market approval process.
Other factors appear to be partially responsible for the drop. For instance, Maryland companies generally find it easier to secure funding during the early stages of development. As more businesses reach maturity, investors are generally less likely to offer funding.
PricewaterhouseCoopers's director of emerging company services added that an uncertain financial climate has prompted a widespread drop in venture capital investment. Many investors have been scared to fund new businesses until issues like the state of the economy, impending tax law changes and questions about government spending become more clear.
Despite the decrease in funding for biotechnology and other industries, software companies in Maryland and the rest of the region reportedly received $391 million in venture capital funding. Nationwide, such businesses received $8.3 billion in financing, an increase of 10 percent compared to the previous year.
Source: Baltimore Sun, "Venture capital for companies in the Maryland region drops nearly 27 percent," Eileen Ambrose, Jan. 21, 2013