La. left in the dust in race for venture capital

By Stewart Yerton
Business Writer/The Times-Picayune

Venture capital investment in Louisiana trailed other states and cities in 2003, maintaining the state's status as a backwater for high-growth start-up companies and entrepreneurial activity in high-tech sectors.

Louisiana start-up companies attracted three venture capital deals worth $24.9 million in 2003, according to the PricewaterhouseCoopers MoneyTree Survey on venture capital investment, which was released last week. That compared with 154 deals valued at $1.2 billion in Texas; 70 deals worth $620.1 million in Colorado, and 102 deals worth $706.1 million in San Diego.

California's Silicon Valley led the nation with 761 transactions valued at $5.9 billion.

The numbers offer a benchmark for how far Louisiana and the city of New Orleans must go to build one of the key elements of a vibrant entrepreneurial community, said Tim Williamson, president and chief executive of the Idea Village in New Orleans, a nonprofit business incubator that has pledged to make the city "The Entrepreneurial Capital of the World."

"I don't think we're there yet," Williamson said. "We're starting to put the pieces in place to nurture that ecosystem."

The Idea Village has raised money from private donors, as well as the city of New Orleans, which granted the group $500,000 from a taxpayer-financed economic development fund. The Idea Village is working with a spectrum of small companies, from a kiddie music group called the Imagination Movers and the owner of a new retail clothing store to executives who are trying to build new companies to market medical devices and health-care services. That kind of support, Williamson said, enhances the "ecosystem" and will pay off in the long run.

Furthermore, Williamson said, the Tulane University and Louisiana State University health sciences centers are working on a number of projects, including a joint gene therapy program and cancer research initiative, that will generate the kinds of basic intellectual property that often attracts venture capitalists looking for the next big thing.

"Money is probably a secondary factor, after you build the infrastructure," Williamson said.

Unlike other kinds of financiers, such as banks or mortgage lenders, venture investors generally make high-risk equity investments in companies with high growth potential. Venture investors led the charge to commercialize the Internet, for example, and are now pumping money into emerging fields such as nanotechnology.

Despite an attempt by the Legislature to fuel venture capital investment by steering hundreds of million of dollars of taxpayer money into privately managed venture investment firms called CAPCOs, Louisiana continues to trail other states and regions in venture capital deals.

Louisiana's portion was less than 1 percent of the $18.1 billion invested in venture deals nationwide in 2003; the state's three deals represented an equally piddling fraction of the 2,715 national total.

Still, the MoneyTree report did suggest Louisiana is wise to invest taxpayer money in New Orleans' university health sciences centers, said Kirk Walden, national director of venture capital research for PricewaterhouseCoopers in Austin.

Recent trends show the life sciences to be among emerging fields.

In the third quarter of 2003, for example, venture investment in biotechnology companies outpaced investment in computer software companies for the first time in seven years. That momentum continued into the fourth quarter, as the industry again outpaced software. The broader life sciences sector, which also includes medical devices, attracted $4.89 billion in investment for the year, or 27 percent of all the venture capital invested, the highest proportion directed to the sector in 12 years.

Nonetheless, Walden said, it will likely be some time before New Orleans reaps the full benefits of the investments.

"The good news and bad news about life sciences is that it seems to be a longer-term proposition to develop than the latest and greatest Web site. But once the companies do take hold, they tend to stay."

Walden offered two reasons for the VC's bullish outlook on life sciences.

"The obvious answer is the best, which is that we, in fact, are all getting older," he said.

Coupled with the aging population, and the surge in demand the baby boomers will create, is increasing consumer awareness about drugs, medical devices and treatment options, which drives demand.

"The fact that some average person can now rattle off the name of a prescription drug for arthritis is amazing, when you think about it," he said. "Our firm is bullish on the category for the foreseeable future." So far, two small, local life sciences firms have managed to raise early stage investment from so-called "angel investors."

DANA Diabecare USA, a New Orleans marketer of insulin pumps for diabetes patients, last year raised money from an individual equity investor in Texas, said the company's chief executive, Sue Jernigan. However, Jernigan declined to identify the investor or the amount of the investment.

Likewise, Jane Cooper, chief executive of Labyrinth Health Care Group Inc. of New Orleans, has raised an undisclosed amount of equity investment from local businessman Gary Solomon. Cooper's company, which operates under the trade name Patient Care, helps people navigate the mazes of bureaucracy often created by their health insurance companies. Referring to its product as "advocacy services," the company contracts with corporations that provide the service to employees, as well as private individuals.

Williamson, whose organization has worked with Jernigan and Cooper, said such examples show New Orleans has creative entrepreneurs who can attract investors, given the right kinds of support.

As the next investment cycle gets under way, Williamson said, the city has more tools in place to attract capital than it did during the boom of the late 1990s. He said New Orleans should look at San Diego's investment levels as a benchmark.

"If we can be doing what San Diego is doing in a down cycle, that would be a good target," he said. "If we do half of that . . . that's a nice start."

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Stewart Yerton can be reached at syerton@timespicayune.com or at (504) 826-3495.
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