While you'll find venture capitalists more often on beaches than in boardrooms during August, this year may have been an exception. In the third quarter...
While you’ll find venture capitalists more often on beaches than in boardrooms during August, this year may have been an exception.
In the third quarter, more VC money flowed into Washington state companies than in any other period in the past three years. The upward trend reflects a more lively investment climate not seen since the technology bubble burst about five years ago.
“August tends to be slower,” said Scott Bergquist, manager of Silicon Valley Bank’s Northwest region. He finds people have to work extra hard in July and September for the third quarter to even match the level of activity in the previous period.
Tony Audino, Voyager Capital’s managing partner, said he wouldn’t use the word “frothy” just yet, but it is getting close.
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“I would say that people are feeling like there’s ample money out there,” he said.
In the third quarter, private companies in Washington state raised $243 million, surpassing the $234.2 million raised in the previous quarter and $180.4 million in the year-ago period.
The second quarter of 2002, which saw $246.1 million, was the last time that much money was raised.
The increase did not occur nationally. In the third quarter, VCs invested $5.5 billion, or slightly less than the previous quarter’s $5.9 billion. In the year ago period, $5 billion was invested.
The state was the sixth most active area in the country, behind the San Francisco Bay area, New England, Southern California, New York and Washington D.C.
“The Northwest is an exciting area, not measured in quarters, but years,” Audino said.
Investing has been steadily rising over the past year, he said, because of two hot industries in which Washington companies have special expertise: digital media and wireless.
In addition, the state is typically strong in two areas — health care and software, which was no exception in the third quarter. Health-care companies received $71.1 million, aided by a $35 million round raised by Light Sciences Oncology in Snoqualmie. Software companies received $50.3 million.
To amplify Audino’s point, the communications area raised $31.5 million; in the past couple of years it has not attracted much more than $50 million a year.
“I think [the Northwest] will continue to outperform on a national basis,” he said.
The increase in funding has intensified competition — leading to companies attracting more than one offer — and completing deals in a shorter time.
“There is a faster pace to the due-diligence process,” said Matt McIlwain, a managing director at Seattle-based Madrona Venture Group.
“It’s far less intense in the Pacific Northwest than what is happening in Silicon Valley, but the pace has picked up.
“It used to be that you can choose to be a more of an adviser and watch the progress of a company in its early months. That’s somewhat less of an opportunity.”
The result of a more frenetic pace and competition is that some deals are getting more money or sweeter deals, said Janis Machala, founder and managing partner at Paladin Partners, a consulting firm.
She told of one deal that was boosted by $2 million because of investor interest.
“You’ll end up getting more founder- and company-favorable terms,” she said, but “they aren’t going wild and crazy.”
Tricia Duryee: 206-464-3283 or firstname.lastname@example.org