BioNanomatrix leads slow parade of Q1 venture deals

Mirroring the frustratingly slow recovery in the broader economy, the venture capital sector cheered improved, if somewhat simmering, activity in the first quarter.

Nationally, about $5.9 billion was invested in 736 deals in 2011’s first three months, according to the PricewaterhouseCoopers/National Venture Capital Association MoneyTree Report, released Friday.

In the fourth quarter, venture capital firms poured $5.6 billion into 827 deals.

Based on data from Thomson Reuters, the MoneyTree Report tallied 22 deals for the Philadelphia region totaling $149.6 million for the first quarter. By contrast, 33 area companies raised $95.9 million in the fourth quarter.

The biggest local deal of the first quarter was a $23.3 million equity financing of BioNanomatrix Inc., a Philadelphia company that’s trying to cut the cost and time involved in analyzing the human genome.

At least, that’s the biggest deal for a company I’d consider in the Philadelphia region. The data gatherers have an expanded notion of the region that includes Lehigh County to the north and Mercer County across the river.

Ordinarily, it’s no big thing to isolate companies in counties that border the Philadelphia region. However, in the first quarter of 2011, three such companies were among the six biggest venture capital transactions:

  • CyOptics Inc., of Breinigsville, raised $45.7 million to help expand its design and manufacturing of optical-networking components.
  • Ophthotech Corp., of Princeton, raised $15 million to help fund its development of treatments for certain eye diseases.
  • Lightwire Inc., of Allentown, raised $14 million to support its development of optoelectronics, for use in networking, communications, and server/storage systems.

Together, those three Philadelphia-ish companies accounted for about half the $149.6 million invested in the region as defined by the MoneyTree Report.

It’s a pet peeve of mine that there is an inclination among economic-development types to annex other regions to the Philadelphia area, especially Mercer County, rich in offices of Fortune 500 companies. I understand why they’d rather incorporate Princeton, with its gilded name, into this region rather than the nearly equidistant Bear, Del.

I don’t need to reach quite so far to find companies that are interesting, and BioNanomatrix, which has been trying to come up with a way to sequence the human genome for about $100, is a good example.

The flaw in my logic, however, is that the technology on which BioNanomatrix is based was invented at … Princeton University, where BioNanomatrix founder and chief scientific officer Han Cao was working.

Even three of its investors have Princeton ties: Battelle Ventures, Domain Associates L.L.C., and Gund Investment Corp. But the company has also “imported” a fair amount of capital from firms outside the region, including Innovation Valley Partners, of Knoxville, Tenn., and KT Venture Group L.L.C., of San Jose, Calif.

BioNanomatrix is now based on the fourth floor of a University City Science Center building at 3701 Market St. in West Philadelphia, where it is trying to commercialize its cost- and time-saving technology for use in the genomics field.

Perhaps Philadelphia can boast unconditionally about the clean-technology strategy of Viridity Energy Inc., which raised $15 million in January. Founder Audrey Zibelman was a former chief operating officer of PJM Interconnection L.L.C., the Valley Forge-based electrical-grid operator.

Viridity has been helping SEPTA lower its electricity bills by capturing energy from subway-braking systems. The company also manages power consumption at three buildings on the Drexel University campus. Last week, it announced a deal with Thomas Jefferson University to develop a battery system to store cheap power produced at night for use during the day.

Viridity, too, has been a net importer of venture capital. Investors in the latest round were Braemer Energy Ventures, of New York, and Intel Capital, of Santa Clara, Calif.

The only other local deal above $10 million involved Core Essence Orthopaedics Inc., of Fort Washington. The surgical-device-maker raised $11.5 million in March. Baird Venture Partners was the lead investor. Baird is part of Milwaukee-based Robert W. Baird & Co. Inc., a financial-services firm that manages about $82 billion in client assets.

Core Essence is focused on high-volume, sports-medicine procedures with its surgical products.

Mark Heesen, president of the National Venture Capital Association, was happy to see no single sector attracting all the investment dollars nationally, despite fears that the lofty valuations of various social-media firms suggest an investment bubble has formed once again.

Still, the nation’s 10 biggest deals include two for electric-vehicle-makers - $111.92 million for Fisker Automotive Inc., of Irvine, Calif., and $76.4 million for Coda Automotive Inc., of Santa Monica, Calif. And the largest deal in the land was $201.7 million for BrightSource Energy Inc., an Oakland, Calif., firm developing utility-scale solar-power plants.

The MoneyTree survey counted $1 billion in venture capital going to the clean-technology sector. That amount was 26 percent higher than in the fourth quarter, and the number of deals increased 11 percent to 69.

That may not be a bubble, but it shows that alternative energy, pollution control, and power conservation remain an electric area for venture capitalists.