By Timothy Glenn
Contributor

Firms headquartered in the Ocean State have received more venture capital money this year than in the previous three years combined. Venture capital investment in Rhode Island totals at least $71 million, according to figures provided by the companies and by PriceWaterhouseCoopers, an accounting firm that tracks venture capital.

That's more than seven times last year's figure of $9.4 million.

Comparing the last 5 year's with this year only 1996 comes close when $48.8 million in venture capital money was invested in Rhode Island.

Still, the state ranks far behind Massachusetts, and has often come in last among New England states in terms of venture capital investment.

For example, PriceWaterhouseCoopers said venture capital investments here accounted for only about 0.7 per cent of simlar investments in all of New England in the first two quarters this year. "Rhode Island still lags behind Massachusetts," said Richard Puccio, a partner with PriceWaterhouseCoopers who works in Boston. "But Massachusetts had quite a head start and larger critical mass."

Venture capital is a key source of financing for start-up companies, which often are perceived as too risky by banks when it comes to loans. Venture capitalists often get shares of the company they help to fund, and may get a substantial return on their money if the venture is successful.

Much of the investment money in Rhode Island this year has gone to two firms, Context Media and Bluestreak, both new Internet companies. Within the past two weeks, both have announced big investments through second rounds of funding.

Context Media, which makes software and provides services to media companies to help them share and sell their content to other Web sites, said it closed on $20 million in venture capital. The Providence-based company raised $31 million this year.

Bluestreak, a Newport company which makes technology to make Web banner ads more interactive, announced recently it received $16.5 million in venture capital money. Bluestreak's total raised this year is $23.5 million.

Several other Rhode Island companies have received venture capital money, according to VentureOne Corp., a San Francisco-based subsidiary of Reuters that tracks investment deals for venture capital firms.

VentureOne lists these Rhode Island companies as receiving investments this year: Spherics, developer of oral drug delivery approaches; Mesa Systems Guild, maker of Web-based collaboration tools; LiveWave, provider of live video content; and Micropure, manufacturer of particle monitoring instruments.

In addition, other Rhode Island companies that have received investment funding include e-tel corp., maker of telephones that work with Internet-based technology; and DefendNet Solutions, provider of Internet security products and services.

"The amount of deals and the size of the funding has increased dramatically in the past year" in Rhode Island, said Puccio of PriceWaterhouseCoopers. He focuses on up-and-coming technology companies in the Providence marketplace.

Why the increase? "Clearly, the Rhode Island technology marketplace has been much more active in marketing itself," said Puccio. He credits some of that to the Brown Venture Forum, which regularly puts together venture capital firms with companies looking for startup money. That forum, for example, will meet in January to feature B2G-Markets, Inc., a Newport company that helps link vendors and suppliers with local governments.

And, Puccio said, the R.I. Technology Council has been bringing together service providers, venture capital companies, accountants, and lawyers to see the potential of the Rhode Island marketplace.

The cost of doing business in Rhode Island is dramatically lower than the Boston area, he said, helping to drive growth in the area. Its too early to tell whether this year is unusual, or whether the amount of investment here will continue or grow, he said. Some of it will depend on the success of the current crop of start-ups, he said. If one of these young companies has a successful initial public offering, or IPO, that could attract national media attention, perhaps sparking more start-ups, Puccio said.