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Younger firms capture bigger cut of venture capital pie

By Tricia Duryee
Seattle Times Eastside business reporter

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It may be a sign that companies that received capital earlier are in better shape and don't need more financing for now, said the survey, compiled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

"The increase in early-stage fundings is a promising sign that older companies already in portfolios are now healthier and may be self-sustaining," said Jesse Reyes, vice president at Thomson Venture Economics.

In the United States, 761 companies received $5.6 billion in the second quarter, reflecting a level of investing that has steadily increased the past four quarters. Of that pool, 30 percent, or 229 companies, were classified as early stage, the highest number of young enterprises in two years. Those companies received 21 percent, or $1.17 billion, of all dollars invested during the period.

Early-stage companies are typically less than 3 years old and may not have revenue.

Washington mirrored the national trend. In the state, 28 companies received $249.7 million in the quarter. Eleven of them — nearly 40 percent — were considered early stage. They received $99.4 million, the most since the first quarter of 2001.

The MoneyTree Survey largely confirmed a similar report released yesterday by VentureOne of San Francisco. The methodology of the MoneyTree Survey differs from that of VentureOne/Ernst & Young in that it reports partial financings. VentureOne waits until the close of a round to report the information.

One Seattle company that fits the young-company profile is Pure Networks, which received $7 million from the Mayfield Fund and Ignition Partners in the second quarter.

The company, which develops software to help consumers set up computer networks in their homes, found it easier to navigate the fund-raising process than it expected, said Chief Executive Tim Dowling.

The largest early-stage deal, which accounted for almost half of the dollars raised in the category, went to Mforma, a Kirkland wireless development company that raised $44 million. The second-largest, $16 million, went to Purcell Systems of Liberty Lake, Spokane County.

Chad Waite, general partner at OVP Venture Partners in Kirkland, said his company has closed at least three deals since the beginning of the second quarter, a sharp increase over last year. More established companies are attracting more attention, too, he said.
 
"In our portfolio, six to seven companies are entertaining discussions" of being acquired, he said.

What may be driving some of that interest is the increased value of venture-backed companies. Rising valuations have occurred for all stages of development, but especially for expansion-stage companies, the survey said.

Such companies are usually more than 3 years old and have shown significant revenue growth but may or may not be profitable.

On a 12-month basis ending in the first quarter — the most recent figures available — expansion-stage companies were worth an average $50.3 million after receiving a round of funding. That compares with $36.1 million a year ago, a 28 percent increase.

Tricia Duryee: 206-464-3283 or tduryee@seattletimes.com