Venture capitalists expect more deals, hiring in region
Wednesday, August 11, 2010
Portland-Vancouver area venture capital investors are optimistic that the coming months will bring more deals and more hiring for startups in the region.
The number of venture capital investments in Oregon and Southwest Washington companies has steadily increased each quarter since the industry hit an all-time quarterly low of four deals in the second quarter of 2009, said Eric Rosenfeld, managing partner of Capybara Ventures in Portland. The second quarter this year was one of the best quarters in several years in terms of the number of companies receiving funding, he said.
And local investors, including Capybara, Pivotal Investments and Voyager Capital, expect the upward trend to continue.
“This economy will generate more innovation that will result in more funded startups,” said Brad Zenger, a partner with Pivotal Investments in Portland, which focuses on clean technology companies.
A potential increase in deal flow is good news for Clark County businesses seeking funding. That’s because brand new companies are most likely to get their first round of financing from local investors, Rosenfeld said. As revenues grow and the company continues to prove its market relevance, larger firms from Seattle and the San Francisco Bay Area start to take notice, he said.
Vancouver entrepreneur Rick Campfield has noticed this change in investor outlook, which gives him hope that his own startup will land funding. The business consultant and a former executive at Evergreen International Airlines and U.S. Digital, is seeking $1 million over two years to launch Akatal, his online social networking site for business consultants and coaches. He’s submitted his business plan to the Oregon Entrepreneurs Network’s startup competition and has been contacting angel and venture capital investors in an effort to raise money for his business.
“Two years ago I tried to breathe life into this thing and it didn’t seem like a good environment,” Campfield said. “It’s better now from what I see …people are willing to listen.
“It’s a great time to jump into being an entrepreneur.”
As more early-stage companies secure financing, they will, in turn, boost hiring. The Portland metro area, in particular, has seen an increase in the number of companies receiving a second round of funding, known as series B financing, after growing successfully with a first round of cash, said Diane Fraiman, a partner with Voyager Capital in Portland and chair of the Oregon Entrepreneurs Network Venture Northwest competition.
Series A funding typically refers to an initial investment in a very young startup, whereas Series B may be a larger investment made once the company has better proven its concept.
“There is new growth going on with companies that raised A’s in early 2009 that have met milestones,” Fraiman said. “As a result of that, with the VC dollars usually comes hiring.”
Capital will be easier to find in some industries than others, however. Pivotal Investments sees opportunities in clean technology, especially in the area of energy efficiency. Voyager is looking at mobile wireless, digital media and Information Technology and Capybara names hosted software services as one hot area.
In the technology sector, investors have been waiting for demand to return before placing their bets, creating an “overhang” of capital ready to be deployed, said Rosenfeld of Capybara. Higher consumer spending on electronics and business spending on IT is now fueling the tech market and spurring many venture capital firms such as Capybara to look for new companies to add to their portfolios.
This local outlook stands in contrast to investor sentiment in Seattle, where venture capital firms expect to make the same number of new deals this quarter that they did last quarter, according to survey results released this week by the Washington Technology Industry Association.
The poll also found that, for the first time this year, companies backed by Washington-based venture capital funds aren’t increasing hiring. Eighty-eight percent of the firms predicted hiring would stay even, while the remaining 12 percent didn’t know if hiring would change.
The difference could be due to Seattle’s more mature market — investors make bigger deals at later stages of growth, Zenger said. It could also be due to Seattle’s heavier concentration in computing, compared with Portland’s more varied startup scene representing industries from energy and clean tech to health care and mobile applications.
Regardless of their location, it’s important for startups to think outside their local markets, Zenger said.
“Put together good teams with experience, focused on compelling market opportunities that are bigger than Portland or Seattle,” Zenger said.