Washington startups have pull for venture capital investors

Funding jumped 69% in 2012, while nationwide activity was falling 10%



Evergreen State startups lived up to the state’s nickname last year, bucking a national trend by pulling in more venture-capital dollars even as VCs nationwide were trimming their portfolios.

Washington companies attracted $931.5 million in 117 deals in 2012, a 69 percent increase over the state’s total venture funding in 2011, according to the quarterly MoneyTree report from PricewaterhouseCoopers and the National Venture Capital Association.

The increase came as national venture activity dipped last year, both in number of deals and amount invested.

Deal volume nationally fell from 3,937 to 3,698, according to the MoneyTree report, and the total amount invested fell from $29.5 billion to $26.5 billion.

Washington’s 2012 numbers were boosted by a couple of megadeals: the $100 million raised over the summer by Bellevue domain-name entrepreneur Donuts, and the $85 million that Zulily, a flash-sale website aimed at busy parents, raised in November.

Zulily’s haul alone accounted for 31 percent of all the venture funding received by Washington companies in the final quarter of 2012. Nationwide, it was the quarter’s third-biggest venture deal.

“To have a couple of really big deals in Seattle is great,” said Steve Sommerville, an assurance partner in the Seattle office of PricewaterhouseCoopers.

PwC and the National Venture Capital Association jointly produced the MoneyTree report, which is based on data from Thomson Reuters.

It was one of two venture-capital score cards to come out Thursday, the other being the Dow Jones VentureSource report. Yet another report, from CB Insights, was released midweek.

All three reports, though differing somewhat in methodology, found more or less the same thing: young Washington companies pulling in a bigger slice of a smaller national VC pie.

“We had a pretty solid year, given all the uncertainties and the ups and downs in the economy,” said Greg Beams, a partner at Ernst & Young who leads the technology practice at the firm’s Seattle office.

According to the MoneyTree survey, Washington remained in sixth place last year in terms of deal volume, and moved up to fourth place (from eighth in 2011) in terms of deal value.

One trend that was apparent was a pullback in seed investments — the first dollars a fledgling company attracts to get itself up and running.

There were 443 seed rounds nationwide in 2011, accounting for 11.2 percent of all deals, but just 274 (7.4 percent of total deal volume) last year, according to the MoneyTree data.

That reluctance to take a flier on brand-new companies was particularly evident in the last quarter of the year, when just 67 of the 968 deals logged by MoneyTree were seed rounds.

“The investors are willing to put money into things they’ve already put money into, but they weren’t necessarily looking to make new investments in the fourth quarter,” Beams said.

Despite some big investments in early-stage companies such as Qumulo and Meteor, more than two-thirds of all VC deals in Washington last quarter went to expansion- and later-stage companies.

“There being a fairly limited pool of venture-capital dollars right now, they’re concentrating on the companies that are already in their portfolios,” Sommerville said.

Another trend, one with more direct impact outside the Pacific Northwest, was a pullback in “clean technology” investments.

Cleantech, as VCs call it, had been a hot sector until fairly recently. In 2011, according to the VentureSource report, 115 renewable-energy deals totaled well over $3 billion.

But a series of high-profile failures, along with uncertainty over the election and newly competitive natural-gas and shale-oil industries, took some of the bloom off the cleantech rose: Last year, according to VentureSource, there were just 69 renewable-energy deals for a total $1.2 billion.

By contrast, sectors strong in Washington and the Northwest — software, IT services, biotechnology — retained, or in some cases regained, their allure.

Besides Zulily, other notable local funding last quarter included Seattle data-storage company Qumulo ($24.5 million), business-software firm Smartsheet.com of Bellevue ($26 million), video-game publisher Meteor Entertainment of Seattle ($18 million) and Seattle biotech NanoString Technologies ($15.3 million).