Venture investment dives in San Diego County

Venture capital investment in San Diego County during the third quarter plummeted to its lowest level in more than five years, an industry survey has found. But investment statewide and nationwide was much more stable, according to the survey by Dow Jones VentureSource.

Countywide investment fell to $117.9 million from $296.8 million in the third quarter a year ago, according to the survey, released Monday.

Investment for the first three quarters fell to $489.3 million compared with $731.7 million for the same period a year ago. Investment for that period has fallen ever since 2006, when it reached $1.5 billion.

"Many venture capital funds have run out of money," said Bill Eigner, an attorney who helps companies get venture funding. "Their returns were so disappointing that their limited partners are not willing to re-up."

Part of the problem is the dearth of initial public stock offerings, said Eigner, a partner with the San Diego law firm Procopio, Cory, Hargreaves & Savitch LLP. Venture capital investors typically get their money back in an IPO. The lack of such an "exit," as the venture industry calls it, means investor money is tied up.

"There are very few venture capital funds in San Diego that actually have funds to invest," Eigner said.

Eigner said cash-seeking companies have coped by reducing expenses and seeking funding alternatives. These include deals with larger companies and heavier use of government funds, such as Small Business Innovation Research (SBIR) and National Institutes of Health grants.

"In some sectors, the government is the last man standing," Eigner said.

Nationwide and in California, quarterly investment fell much more gradually, and was actually up for the first three quarters of the year.

Nationwide investment fell to $5.5 billion in the third quarter from $5.8 billion a year ago. California investment fell to $2.5 billion from $3.2 billion in the year-ago quarter.

For the first three quarters of 2010, investment nationwide rose to $18 billion from $16.3 billion a year ago. California investment rose to $8.4 billion from $7.6 billion a year ago.

Eigner said the lack of venture financing in San Diego has personally helped him and others who are well-connected to funding sources such as individual or "angel" investors.

"We not only introduce our clients to potential investors, but we ready them so they will look good to potential investors," Eigner said.

Call staff writer Bradley J. Fikes at 760-739-6641. Read his blogs at bizblogs.nctimes.com.