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D.C.'s dismal Q4 venture numbers, explained

Greater Washington saw its first sub-$100 million quarter for venture funding in some time, a drop that outstripped the national decline in VC investment.

The most dire interpretation of these numbers would suggest that D.C. has ceded its position among national VC hubs to Texas and the Southeast.
Another, more charitable explanation is this: It’s not a big deal. There just wasn’t a big deal.

In particular, the two local funds most often responsible for growth deals in the double-digit millions — New Enterprise Associates and Revolution Growth — didn’t report a big investment in this region during the last three months of 2012.

“It was a stark institutional quarter,” said John Backus of New Atlantic Ventures, a Reston-based VC firm. But a quarter does not necessarily represent a trend, he said, noting the strength of seed fundings and accelerators, which is not thoroughly counted by the PricewaterhouseCoopers MoneyTree report. While the total dollar amount fell in the last three months of 2012, the year-over-year drop in number of deals was less substantial: Q4 2012 saw 39 deals; Q4 2011 saw 43.

“What it basically says is we have more young companies and not as many mature companies,” Backus said.

It’s the growth-stage deals, naturally, that really drive the numbers. In the third quarter, we saw Sonatype Inc., GridPoint Inc., Telcare Inc. and Zenoss Inc. all raise rounds that surpassed $20 million. Last quarter, we had one: Intrexon Corp., in Blacksburg.

As to Steve Case’s prediction of a $1.1 billion banner year in 2013 for VC in D.C., Backus is slightly less bullish — predicting about $900 million to $1 billion. “I think it’s a bold prediction, I hope we make it,” he said of Case’s forecast.

Washington Business Journal
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