VC funding robust in '07

Software and biotechnology have long been the pillars of Washington's tech economy, but a national trend toward more diverse investments helped make 2007 the best year for venture investments in the Northwest since 2000.

While financing of biotech and software startups remains hearty here, venture capitalists are pumping money into such categories as telecommunications, energy and media.

That broader mix of investments allowed Washington state to beat the total in 2001, but fall short of the all-time high of $2.9 billion recorded in 2000. The investment data are being released today in the MoneyTree Report from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Financial.

In Washington state, investors shelled out $345.4 million to 44 companies in the fourth quarter, compared with $276.9 million and 38 companies the previous year. In 2007, companies raised $1.3 billion, up 27.2 percent from a year earlier.

Nationally, companies raised $29.4 billion in 2007 — the most in six years and an increase of 10.8 percent over the previous year.

Industry experts and venture capitalists said the figures were a sign of health because the growth came in a wide variety of areas. Fears of a growing bubble resulting from too many dollars invested in too few sectors were not a concern.

"These numbers are great," said Deepak Kamra, a general partner at Canaan Partners, who participated in a conference call discussing MoneyTree results. "In 2007, we had steady growth, not crazy growth."

Tracy Lefteroff, a managing partner of private equity and venture capital at PricewaterhouseCoopers, said the five biggest sectors nationwide were software, biotech, medical devices, industrial and energy businesses and telecom. But they took in only 65 percent of all the investment dollars — "all good signs that there are interesting deals to be found across many sectors," he added.

In Washington, the diversity was noticeable as well.

In 2006, software made up 27 percent of all deals. In 2007, it fell to 20 percent. Medical devices totaled 20.2 percent in 2006, falling to just 12.6 percent in 2007.

While these traditional sectors became less prominent here, others were gaining some attention. Media and entertainment investments made up 6 percent of investments in 2007, jumping from just 4.5 percent in 2006. Telecommunications grew to 10.4 percent in 2007 from 7.7 percent in 2006. Similar increases occurred in the retailing and semiconductor categories.

The largest investment of the fourth quarter was a telecom deal, the $55 million raised by Seattle-based Telecom Transport Management.

"I think it's building on momentum that's been in existence for the last two to three years," said Steve Hooper, a partner at Bellevue-based Ignition Partners. "It's been continued steady growth; it was very steady for us."

In addition to industry diversity, investments in the U.S. showed a good balance between young and mature companies, said John Taylor, vice president of research of the National Venture Capital Association.

He said later-stage deals received the most investments ever in the survey's history, but that was balanced by a strong increase in early-stage and seed investments. One area that decreased was expansion deals, a classification between early- and later-stage.

In Washington, investing increased in every stage of development.

Hooper said it takes longer in today's environment for a company to be bought or go public, so investors are prepared to spend more time and money on an investment.

"The 'hold' horizon is longer than it was earlier in the decade," he said. "I believe that and I feel that and we are prepared for that and are making sure that there's reserve."

Erik Benson, a managing director at Voyager Capital in Seattle, said he sees Washington as particularly strong. Its rebound from the early part of the decade has been much greater than the one experienced nationally.

Both in Washington and nationally, investing bottomed out in 2003 after the tech bubble burst. Since then, things have been creeping back to life.

Since 2003, the dollars invested across the U.S. have increased 50 percent. In Washington, investments have increased 188 percent.

"The Northwest investing data for the last few years definitely supports our belief that the region continues to emerge as a leading technology market and that our entrepreneurs are attracting a great deal of interest," Benson said.

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