Startups Struggle to Find Venture Capital

For six months, Flex Biomedical Inc.’s chief executive, Sal Braico, has been furiously trying to raise money to support his Brookline, Mass. life sciences start-up, meeting with as many venture capital firms and angel investors as possible.

But the timing couldn’t be more difficult.

Because of the turmoil in financial markets, few small companies have been able to launch initial public stock offerings this year, forcing venture capitalists to divert money from start-ups to more mature companies that would normally be able to go public. In addition, some say the burgeoning recession and sharp stock market decline last month have made some investors increasingly nervous about gambling on novel ventures.

“Early-stage companies always have a difficult time” raising money, Braico said. “Now, it’s even worse. A lot of venture firms are definitely reserving more capital for their existing portfolio companies.”

Braico, though, isn’t despairing. His company is one of two dozen medical device firms scheduled to make pitches to venture capitalists and other investors on Friday at the annual MassMedic Investors Conference at the University of Massachusetts in Boston. Flex’s cofounders, including two Boston University researchers, are developing a polymer-based lubricant that could potentially ease arthritis pain in the knees and other joints.

Other companies giving presentations at the conference include EyeGate Pharmaceuticals Inc., of Waltham; IQuum Inc., of Marlborough; ZymeQuest Inc. in Beverly; Tomophase Corp., of Burlington; and Curative Biosciences Inc., of Waltham.

The Massachusetts Biotechnology Council plans a similar investment conference on Dec. 9 at the Sheraton Boston Hotel.

“Those conferences are critical to any early-stage company,” said Frank Reynolds, chief executive of InVivo Therapeutics Corp., another Cambridge company scheduled to make a presentation Friday. “You get 100-plus people listening at the same time.”

InVivo Therapeutics Corp., which hopes to raise $15 million, is developing a polymer-based device that could be implanted in patients who suffer spinal injuries to prevent the spread of bleeding and secondary infections, which can lead to paralysis.

Work on the material was originally done by a Massachusetts Institute of Technology professor, Robert Langer, a prolific inventor who has help spawn dozens of biomedical companies.

Chief executive Frank Reynolds said the $15 million will help the company open a manufacturing facility and launch clinical trials, so it can apply for Food and Drug Administration approval to market the product. It has already tested the device in primates.

Massachusetts medical device makers raised $207 million from venture capitalists through the first nine months of this year, down about one-quarter from the same period a year earlier, according to the accounting firm PricewaterhouseCoopers. A growing share of the money is going to later-stage companies, rather than to start-ups.

“Fortunately, I am not in the middle of fund-raising,” said Larry Jasinski, chief executive of three-year-old Soteira Inc., of Natick, which is also on the MassMedic conference roster. “For companies that are in early stages, not a lot seems to be happening.”

Soteira is seeking approval to market a system to treat fractured vertebrae in patients suffering from osteoporosis, cancer, and traumatic injuries.

Flex, meanwhile, has garnered smaller amounts of money — $200,000 from Boston University and a $175,000 small-business grant from the National Institutes of Health.

Braico said it hopes to raise $750,000 to $1 million more to complete animal testing and expand manufacturing of its arthritis treatment.

If approved by the FDA, Braico said, the product would compete with the hyaluronic acid shots produced by Genzyme Corp. in Cambridge and others.

“We believe it’s a superior lubricant,” he said.

Still, Flex is operating as a “virtual company” without a central office to make its existing funding last longer, one of several tactics start-ups are using to conserve cash.

“It’s the most cost-effective way to do business,” Braico said.

At least for now.