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Originally published October 18, 2011 at 9:02 PM | Page modified October 19, 2011 at 11:05 AM

State sees rise in venture-capital investment

A handful of large deals in the third quarter drove the increase, and some signs indicate the long-term picture remains bleak.

Seattle Times business reporter

quotes Interesting news. Would enjoy hearing more on the early stage investments and not just... Read more

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Venture-capital investment in Washington state picked up in the third quarter, but a handful of large deals drove the increase, and some signs indicate the long-term picture remains bleak.

The state's total dollar amount rose to $194.6 million during the quarter, up more than 9 percent from the $178.1 million invested during the same period last year, according to the quarterly MoneyTree Report released by PricewaterhouseCoopers and the National Venture Capital Association, based on Thomson Reuters data.

National venture-capital investment, at nearly $7 billion, was up almost 31 percent from the third quarter of 2010.

Traffic-information provider Inrix saw the most third-quarter investment in the state — $37 million.

Overall, Washington ranked fifth in amount invested, compared with 10th during the second quarter this year.

However, the gap between the amount invested in Washington and states higher on the list has been growing.

Just ahead of Washington is Massachusetts, with more than $500 million in the quarter.

"There are four states that are getting the vast bulk of the dollars," said Stephen Sommerville, Seattle-based audit partner for PricewaterhouseCoopers, speaking of California, New York, Texas and Massachusetts. "Historically, that was not the case."

A decrease in early-stage investments was also something he didn't view as boding well for future quarters, though some local venture capitalists see this changing.

Early-stage investment in Washington was down to $39 million from $74 million during the second quarter.

"There's plenty of money available for great early-stage projects," said Dan Levitan, co-founder of Seattle-based Maveron, which invested in Zulily, a startup that received the second-highest amount in Washington for the third quarter. Zulily operates an online private-sale shopping market.

"The problem is not the availability of money; the problem is the availability of great teams pursuing great ideas," Levitan said.

He said he hopes programs such as TechStars, a network that helps mentor and support entrepreneurs, will change this.

Sommerville said he expects the state in the fourth quarter to have results closer to that of the first half of the year. The second quarter saw the lowest venture-capital investment levels since early 2009.

Media/entertainment and software are the industries in Washington receiving the most money so far this year, though retailing and distribution was at the top for the quarter.

The software and biotechnology industries received the most venture capital nationally during the quarter, at more than $2 billion and $1 billion, respectively.

Some see the national figures as a positive sign for venture-capital investment in the country in the coming months.

"What we have here is still pretty robust," said John Taylor, head of research at the National Venture Capital Association.

"There are a record number of companies that exist and (inhabit) this category called 'later stage,' and there is also going forward an expectation that the IPO markets can come back to life," Taylor said.

Alexis Krell: 206-464-3263 or akrell@seattletimes.com

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