State’s startups pull in big piles of venture capital
Venture investments in Washington and in the nation grew at a fast clip in the first quarter, with much of the activity involving early-stage companies and startups that develop software.
Seattle Times business reporter
Venture-capital activity in Washington got off to a good start this year, according to two reports released this week.
In the first quarter of 2014, investors dished out nearly double the amount recorded in the same period last year.
Though the amount was considerably smaller than in the fourth quarter of 2013, when the total reached a level not seen since 2000, it was still larger than the three previous quarters of last year.
Venture capitalists invested $172.4 million in 26 Washington companies in the first quarter, more than a 91 percent increase from a year ago, but 182 percent less than in the previous quarter, according to the MoneyTree report being released Friday by PricewaterhouseCoopers and the National Venture Capital Association.
Washington outpaced the nation, which saw a nearly 58 percent increase in venture investments compared with the first quarter of 2013. Using data from Thomas Reuters, the MoneyTree report said $9.5 billion was invested in 951 deals during the quarter, compared with $6 million in 916 deals the year before.
The number of deals nationwide in the quarter decreased by more than 14 percent from the fourth quarter, while drawing in 12 percent more in dollars invested.
“Nationally, dollars were up even Q1 over Q4, which was not a trend that we saw here locally,” said Stephen Sommerville, an assurance partner in the Seattle office of PricewaterhouseCoopers. “You don’t have that many deals happening in Washington compared to nationally, or even to California, Massachusetts and New York. So it doesn’t take more than a few deals to sway the quarter-to-quarter comparisons.”
In the final quarter of 2013, Juno Therapeutics received $120 million, followed by Redfin with $50 million and Immune Design with $48.5 million, which Sommerville says is the reason for the large gap between the fourth quarter last year and the first quarter this year.
Another quarterly venture report released this week — by Dow Jones on Thursday — showed different numbers than MoneyTree’s because of variances in their methodologies.
Both indicated a national and state rise in investment amounts year over year but a drastic drop from last quarter for the state.
Dow Jones reported $114.4 million invested in Washington companies, a 36 percent increase from the same quarter last year but a nearly 346 percent drop compared with the final quarter of 2013.
Correspondingly, the nation saw a 43 percent increase from the first quarter last year and a nearly 18 percent gain from the final quarter of 2013.
According to the MoneyTree report, the majority of Washington’s deals in the quarter came from the software industry, which captured 13 of the 26. The industry also claimed the largest amount of investment dollars, bringing in $99.4 million.
The next largest investment in the quarter was in biotechnology, with $30.1 million in four deals.
Nationally, software companies captured $4.0 billion in investments — 42 percent of the quarter’s total. According to the report, the last time software investments reached this level nationally was in 2000.
“Software is a very, very attractive and investable sector right now. Historically it has been the bread and butter of the VC industry,” said John Taylor, head of research with the National Venture Capital Association.
“These days you can start a software company with very little capital ... you make it once and sell it many times.”
The largest Washington investment this quarter was a $30 million late-stage investment in software company Avalara, which is headquartered on Bainbridge Island and offers automated sales-tax software.
It was followed by $25 million early-stage investment in Juno Therapeutics.
Early-stage funding continued to lead in Washington, both in terms of overall funding and the number of deals, and represented 49 percent of funds and 15 deals involving such companies.
Nationally, the majority of investment dollars went to expansion-stage deals, which usually means a company has been in business more than three years. This stage represented 41 percent of the overall national funding, with 274 deals and more than $3.9 billion.
“In 2012 and 2013, the name of the game was really seed and early-stage investments. What is happening now is these companies have gotten the proof of concept and they are starting their expansion stage,” Taylor said. “I think it is a positive sign that these companies are starting to move forward and are able to get the financing they need.”
Coral Garnick: 206-464-2422 or email@example.com. On Twitter @coralgarnick