As we saw in the venture activity surveys that came in last week, the capital deployed by VC firms in startups developing innovative technologies has been returning to pre-recession levels in key technology hubs throughout the United States.
In San Diego, however, venture funding has taken a decided turn for the life sciences. Of the 29 startups that got a total of $198.2 million in San Diego during the second quarter, all but five of the deals were life sciences deals, according to the MoneyTree Report. At least $193.1 million, or more than 97 percent, went into San Diego life sciences deals during the recent quarter. But it’s not that the life sciences startups have been claiming more than their share of VC dollars—it’s that they account for a proportionally larger slice of an ever-shrinking pie. Even a moving average that smooths quarter-to-quarter fluctuations reveals that overall venture funding levels in San Diego have plunged by roughly half over the past three years.
So the timing could not have been much better when I got an opportunity to sit down with Sumeet Jain, a principal at the San Francisco venture firm CMEA Capital, where he focuses on deals in software, consumer Internet, digital media, and mobile. Jain, who visits San Diego about once a quarter, says he met recently with leaders of San Diego’s innovation community “to see what can we do to facilitate the capital flow in this region.”
CMEA Capital has considerable resources. The firm has total invested capital of more than $1.2 billion, and specializes in deals in three general sectors of innovation: life sciences, information technology, and energy and materials. In the Bay Area, CMEA deals include San Mateo, CA-based CafePress, Bayhill Therapeutics in Palo Alto, and CNano, which is based in San Francisco and Beijing, China. In San Diego, CMEA has invested in Kalypsys and Intellikine, a couple of San Diego’s most-prominent life sciences startups; materials innovator Wildcat Discovery Technologies; and Entropic Communications, (NASDAQ: [[ticker:ENTR]]), a semiconductor design company that specializes in cable set-top boxes and related home entertainment technologies.
“We’ll look anywhere for deals, and Southern California is relatively less harvested,” Jain says. “Unfortunately, a lot of the venture firms that have been active in Southern California are no longer active down here.”
So what’s missing with the innovation community in San Diego?
“One of the things you need for innovation to thrive is a good path for failure to survive,” Jain says. In contrast to San Diego, the Bay Area has what he calls “a very liquid environment if you fail.” It’s largely due to what Jain calls the Bay Area’s “startup infrastructure,” a bigger and more concentrated community of entrepreneurs, startup CEOs, and VC partners who have worked together before and are willing to come together again, even if a previous collaboration cratered.
Another contrast he sees is in the way startups get
