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Originally published Friday, January 20, 2012 at 4:31 AM

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Local, national venture financing declines for fourth quarter 2011

Venture-capital investments fell both nationally and in the Seattle area in the fourth quarter of 2011, according to the VentureSource and MoneyTree surveys. For all of 2011, VC activity was down locally but up nationally.

Seattle Times business reporter

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Venture-capital financing dipped both nationally and locally in the final quarter of 2011, according to data from two surveys to be made public Friday.

Seattle-area companies received a total of $131.5 million in 35 VC deals last quarter, according to Dow Jones VentureSource. Although that was the most deals since the second quarter of 2009, the dollar amount invested was off 20.6 percent from the third quarter and 46 percent below the fourth quarter of 2010.

A rival survey, the MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association, counted 24 deals involving Washington-based companies worth a combined $88 million; that figure, too, was down from both the third quarter and the fourth quarter of 2010. (The two surveys use somewhat different methodologies to track deals and break them down by different geographies.)

According to MoneyTree, Washington ranked sixth in the nation in terms of number of deals last year, with 114; that was exactly as many as in 2010, when the state also ranked sixth.

However, the total amount invested fell from $649.7 million in 2010 to $541.8 million last year. Put another way, Washington companies received 1.9 percent of all VC cash tracked by MoneyTree last year, vs. nearly 2.8 percent in 2010.

Nationwide, both surveys showed that VC activity was up in 2011 despite the slowdown in the fourth quarter. VentureSource pegged the increase in money invested at 10 percent, to $32.6 billion; MoneyTree put it at 22.2 percent, to $28.4 billion.

Greg Beams, a partner in the Seattle office of Ernst & Young who leads the firm's Pacific Northwest technology and venture-backed company practice, attributed the fourth-quarter falloff in part to the difficulty many companies encountered in trying to go public.

Initial public offerings (IPOs) are a common way for VC firms to exit their investments, freeing up cash to plow into new companies. With less IPO activity, Beams said, VCs are more careful about where they'll invest and how much they'll commit. "The IPO window didn't slam shut in the fourth quarter, but it certainly narrowed," Beams said.

Another factor, he said, is that since the recession, more companies have striven to generate positive cash flow earlier in their life cycles. With cash coming in the door, such companies need less VC money to fund operations.

According to the MoneyTree survey, more than half of the $88 million raised by Washington companies last quarter went to later-stage companies, continuing a trend away from early- and expansion-stage companies.

Local software companies received the largest share of VC money last year: $123.5 million, or 23.2 percent of the Seattle-area total, according to VentureSource. Other leading industries were business-support services ($81.8 million), consumer-information services ($78.6 million), and biopharmaceuticals ($74 million.)

While those were among the most-favored industries nationally as well, the Seattle area was conspicuously lacking in one of the hottest areas for VC investment: renewable energy. While renewables took in 8.3 percent of all VC money nationwide last year, according to VentureSource, the Seattle region saw just one deal, for $90,000.

"We have a fairly vibrant renewables community," Beams said, "but it's still in its infancy."

The biggest local recipient of VC money in the fourth quarter was Seattle-based NanoString Technologies, which in November secured $20 million in Series D financing. The life-sciences company develops tools for translational research and molecular diagnostics; investors in the round included GE Healthcare, BioMed Ventures, OVP Venture Partners and Draper Fisher Jurvetson.

Other local companies that received significant VC investment last quarter included Seattle-based online real-estate brokerage Redfin, which raised $15 million in October, Seattle-based pet insurer Trupanion ($16 million, according to VentureSource), and DreamBox Learning of Bellevue, a maker of online learning tools that raised $11 million last month.

Drew DeSilver: 206-464-3145 or ddesilver@seattletimes.com

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