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Down to Business: Capital Region sees small uptick in venture capital investment

Down to Business: Capital Region sees small uptick in venture capital investment

The numbers are modest, to be sure, but at least they’re there: two and $900,000.

The numbers are modest, to be sure, but at least they’re there: two and $900,000.

That’s two deals for a total $900,000 invested by venture capital firms in local companies during the second quarter. It’s an improvement from zero local deals and investment in the first quarter, but isn’t going to turn many heads.

The numbers are from the MoneyTree Report, compiled by PricewaterhouseCoopers, the consulting firm, and the National Venture Capital Association, an industry trade group, using data from Thomson Reuters. Once the quarterly totals are calculated and released, a more detailed breakdown occurs by region of the country; those results came out this week.

They show the Silicon Valley in northern California capturing the most investment, as it usually does: $2.9 billion in 276 deals, or nearly half of all venture transactions in the quarter. Farther down the list is the region designated “Upstate NY,” which encompasses all of the state outside the New York City metro area. It saw $14 million in five deals: the two in the Capital Region, two in Ithaca ($5.1 million total) and one in Buffalo ($7.7 million).

Venture capital firms, or VCs, offer cash and management expertise in return for a stake in a young company showing high growth potential. It’s a risky bet for the investor, but one that can pay off when the company, once successful, is acquired or taken public in a stock offering.

Economic downturns can weigh on VCs, since their money comes from institutional investors like banks and pension funds, as well as high-net-worth individuals — all of which were tripped up by last year’s financial crisis. But first-half numbers indicate that investments are returning to 2008’s pre-meltdown levels.

In upstate New York, for instance, MoneyTree reported 11 deals and $33.8 million in venture investment between January and June this year, vs. 19 deals and $34.8 million in the first half of 2008. In the same six-month span in 2009, the recession is evident in eight deals and just $4.3 million in investment.

VCs “are feeling more positive about the economic outlook for investments,” and that likely will continue for the rest of the year, said Tracy Lefteroff, a partner in the venture capital practice at PricewaterhouseCoopers, when the MoneyTree Report was released.

But will the Capital Region ever show up regularly in the report, as Ithaca and Buffalo typically do each quarter?

Peter Pritchard isn’t sure. He knows that upstate can be “a big flyover area” for top VCs looking at Boston, Texas or the West Coast for investment opportunities. “How do we get better at showcasing the right businesses?” asks Pritchard, who oversees programs at the Center for Economic Growth in Albany that aid companies seeking venture money, such as the Tech Valley Angel Network and the Smart Start Venture Forum.

One answer may be to restructure the Angel Network into an actual pool of money that is invested in companies, rather than continuing to play matchmaker between individual start-ups and investors. Or Smart Start could be rejiggered to parade companies before VCs in New York City, rather than trying to lure them to a showcase upstate.

But Pritchard seems certain that the GlobalFoundries plant in Malta will lead to an uptick in VC interest in a few years. “When you have tech people, they come up with more whiz-bang ideas” that get attention and lead to new businesses, he says. The region just has to be hospitable — or risk losing them to the likes of Ithaca and Buffalo.

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