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When start-up pharmaceutical company Spherics arrived in Mansfield amid much fanfare and a first-of-its-kind, $2.5 million state economic development loan, hopes were high that the firm would generate a steady stream of jobs and tax revenue.

Instead, Spherics folded abruptly earlier this year, when investors pulled the plug, scarcely two years after the company took over and modernized a plant in the Cabot Business Park.

More recently, Foxboro-based Cyberkinetics Neurotechnology Systems, which received worldwide press for its technology designed to harness human brain waves, announced that it was in financial crisis, and had only enough cash to last through October.

While both companies had good ideas - including a more effective method for delivering Alzheimer's medications and a device that helped restore feeling to spinal cord injury patients - neither was able to find business success matching their scientific prowess.

Although such stories have been relatively rare in the world of glamorous medical start-ups, some are warning that life science companies and other technology companies may be facing a more competitive struggle for investment dollars and ultimate survival as venture capitalists become increasingly picky. In the second quarter of 2008, venture capital investments in life science companies - including biotech and medical device firms - actually declined 14 percent nationwide over the same quarter a year earlier, according to the Money Tree Report compiled by the National Venture Capital Association and Price Waterhouse Coopers.

In Massachusetts, investment in life science ventures during the first half of 2008 shrank to $420 million from $480 million, compared with the same period last year.

Nevertheless, biotech investment in Massachusetts remains the most concentrated of any state in the country.

"When you talk about one in maybe 5,000 discoveries ultimately being successful and costs of possibly $1 billion to get a new drug to market, it's a risky proposition," said Bob Coughlin, president and CEO of the Massachusetts Biotechnology Council. "When it comes to funding, you have to look under any rock you can."

While risk is a given in capitalism, it looms particularly large among smaller medical research and technology companies. Many, like Cyberkinetics, start with little more than a brilliant idea and a long road to turning it into a commercial product.

To bridge the gap until its Brain Gate system could complete further development, the company purchased technology for a device that has shown promise in treating severe spinal cord injuries.

But even that hasn't helped Cyberkinetics achieve instant viability. Instead, the device encountered delays in a crucial exemption from Food and Drug Administration rules that would have rushed it to the marketplace.

While venture capital funding may have become harder to come by, major pharmaceutical firms seem to have plenty of money this year to buy Massachusetts-based biotech outfits.

Cambridge-based Sirtris Pharmaceuticals was acquired in April by Glaxo Smithkline in a $750 million deal. And Japan's largest drug company, Takeda Pharmaceutical, agreed to pay $8.8 billion in cash for cancer drug-maker Millennium Pharmaceuticals.

And small Bay State companies with big ideas are still finding ways to keep the money spigot open. Paloma Pharma, a biotech that's working on treating vascular disease, received $5 million in secondary funding last February.

While financing for life science ventures may be problematic at present, experts are still bullish on the future.

Nonetheless, even if major pharmaceutical and med tech firms have the financial muscle, they also have a need to keep their pipeline of new products filled, Coughlin said.

Often that need has been filled by small, entrepreneurial firms that end up licensing their technology or get bought out by larger players.

Still, Coughlin says the biotechnology industry recognizes bottlenecks in the funding process and is working to keep development capital flowing. Recently, the Biotechnology Council worked to remove a restriction on lending federal government funds to companies that derive a high percentage of their support from venture capital.

The group is also promoting alternative sources of capital, including advocacy organizations such as the Cystic Fibrosis Foundation, which maintains its own technology funding arm.

The group is planning a forum in December designed to bring companies together with a wide variety of funding streams.

Despite challenges in financing the life science industry, Massachusetts remains far ahead of other states in investment and access to major technological universities and hospitals.

The industry also received a shot in the arm from new state legislation that would include $1 billion for infrastructure, tax credits and science grants.

"Massachusetts really has a unique edge over both the country and the world," said Chris Kennedy of Sturgeon Investments.

As recently as 2006, the Bay State accounted for 18 percent of all capital invested in the U.S. biotechnology field. Kennedy said the state also has unique assets in its major universities, many of whom have worked in tandem with local businesses to develop new devices and technologies.

However, Kennedy says the Bay State faces intense competition from foreign countries and other states, all of whom want to promote medical technology in their own back yards.

The Biotechnology Council's Coughlin says there is an increasing awareness that being successful in the biotech field now requires more than a better mousetrap.

"Today, you have to be resourceful," he said. "And you have to be creative."

RICK FOSTER can be reached at 508-236-0360 or at rfoster@thesunchronicle.com.