Pace of venture capital funding slows in Indiana, Midwest

The pace of venture capital activity in Indiana slackened a bit in the first quarter, but by less than occurred in the rest of the Midwest.

Seven Indiana companies attracted cash infusions from venture capitalists, according to the latest data from consulting firm PricewaterhouseCoopers, the market research firm Thomson Reuters, and the National Venture Capital Association.

That number of deals was the same as in the fourth quarter of 2012, but an increase over the quarterly average from a year ago.

Indiana companies attracted $16.4 million in payments during the first quarter, according to Thomson Reuters data. Nearly all the money was paid out to Carmel-based ChaCha Search Inc., which secured a $14 million investment in January.

The Thomson Reuters data counts payments as they are actually made to companies, and does not record the total amount announced after a company conducts a round of fundraising.

The amount of VC money for Indiana was down 22 percent from the quarterly average of $21 million in 2012. Because individual states have a relatively low number of deals each quarter, IBJ tries to analyze the Thomson Reuters data annually or by comparing one quarter’s data to an average drawn from a full year’s data.

Venture capital deals have tended to slow down in the first quarters of recent years, according to Thomson Reuters.

Nationwide, dollars paid out to venture-backed companies fell by 13 percent in the first quarter, compared with the average quarterly total from 2012. In all, venture capitalists paid out $5.9 billion in the quarter, compared with a quarterly average of $6.7 billion last year.

Deal volume also fell nationally, declining 8 percent from last year’s quarterly average, to 863.

“Lower investment levels in the first quarter were driven by a number of factors, none of which were unexpected," said John Taylor, head of research for the National Venture Capital Association, in a prepared statement. "The venture industry has been raising less capital than it has been investing now for several years. Ultimately, this dynamic flows through and manifests itself in lower investment levels overall.”

Taylor added that venture funding continues to flow more toward information technology companies, which require smaller amounts of cash, and away from clean tech and life sciences companies, which typically need larger investments.

In Indiana, four of the seven companies receiving venture capital payments last quarter were in the software industry. In addition to ChaCha, they were Indianapolis-based Cause.it Inc., Lafayette-based Emerging Threats Pro LLC, and West Lafayette-based Microfluidic Innovations Inc.

Two biotech companies received small investments. Indianapolis-based Algeon Inc. pulled in $250,000 from the BioCrossroads Seed Fund II, and West Lafayette-based Medtric Biotech LLC was given $100,000 by the Purdue Research Foundation.

“We expect these overall trends to continue until exits and subsequent fundraising activities pick up, and dollars start to flow back into more venture funds,” Taylor said.

In the Midwest, deal volume rose 8 percent in the first quarter, compared with the quarterly average from 2012. But the amount of dollars invested plunged by 65 percent, to $123.3 million.