Seed money: is it too late in the season for venture capital to nurture the growth of biotechs?

• Author: Campbell, Spencer

If money follows innovation, North Carolina companies have been pretty prosaic the last few years. The amount of venture capital flowing into the state in recent years can best be described as a trickle. One industry, however, might be turning things around. According to The MoneyTree Report, a summary of U.S. venture capital compiled from Thomson Reuters data by PricewaterhouseCoopers and the National Venture Capital Association, Tar Heel businesses received $110 million in the fourth quarter of 2013, the state's largest quarterly total in three years. Biotechnology companies got more than $70 million.

But even biotech backers are skeptical of the boost. "I wouldn't read too much into a quarterly spike," says Peter Ginsberg, vice president of business and technology development of North Carolina Biotechnology Center, a Research Triangle Park-based nonprofit, adding that investment was low in the previous quarter. "But the IPO activity is a real plus. We really haven't seen that in a long time. It brings a lot of attention to the North Carolina industry." In the 12 months that ended April 1, 11 Tar Heel companies went public. Five are biotechs.

Venture capitalists invest in risky companies in hopes of rich returns, and life science has provided plenty of plunder lately. The iShares Nasdaq Biotechnology Index grew 60% in 2013, compared with the S&P 500's increase of 26%. "When the public markets are clearly supporting risk takers, it begins to prime the pump down the line for more venture-capital investment," says Michael Easley Jr., the ex-governor's son and a lawyer in Raleigh-based McGuireWoods LLP's life-sciences group. And North Carolina has plenty of biotech companies in the pipeline.

Large companies--such as GlaxoSmith-Kline PLC, Monsanto Corp. and Biogen Idec--anchor the sector as tenants of Research Triangle Park. The three nearby research universities turn out a talented workforce and research rich with commercial possibilities. And contract-research organizations such as Raleigh-based Quintiles Inc. and Wilmington-based Pharmaceutical Product Development LLC guide products through complicated clinical trials. Between 2000 and 2010, the number of biotech companies grew 41%, increasing to 2,509. They employed 62,386, up 43% during the same decade.

While the state's infrastructure supports biotech, early stage funding has been scarce. Only three firms in the state--Intersouth Partners, Hatteras Venture Partners and Pappas Ventures...