Local venture-capital deals fell slightly in first quarter

Investment in startup companies, both nationally and locally, slowed slightly in the first quarter as a dismal economic outlook led to some unease among venture capitalists.

U.S. venture capitalists invested $7.1 billion, down 4.8 percent from a year ago, according to the MoneyTree Report from PricewaterhouseCoopers and the National Venture Capital Association.

Investment was higher than in last year's first quarter, however, and still shows a healthy level of activity led by investments in clean technology, life sciences and software.

The "economic slowdown has had an impact, but at the same time the effect is milder than you might imagine from listening to the evening news," said Nina Saberi, managing general partner of Castile Ventures, a New England venture-capital firm, in a conference call with reporters.

Biotechnology led venture investment nationally during the quarter, with about $1.267 billion in funding, down from $1.5 billion in the first quarter of 2007.

Software came in second, with $1.264 billion, down from $1.27 billion a year ago.

While investment declined in many types of businesses — ranging from medical devices to electronics — it grew significantly in the fields of energy and semiconductors.

A Colorado cellulosic biofuel company, Range Fuels, raised the most money in the quarter: $130 million.

An alternative-energy company also scored the top deal in Washington state. Infinia, a solar-power company based in Kennewick, raised $50 million.

Seattle-area companies raised $243 million in 37 deals during the first quarter, down from $352 million in 35 deals for the same period last year.

Biotech provided the most attractive investment for venture capitalists: the top deal was Alder Pharmaceuticals, which raised $40 million.

Experts say the current economic turmoil does not affect early-stage firms, which are at least five years away from an initial public offering.

"We still see a very strong startup environment; the flow of new deals is as good as ever," said Gerry Langeler, a partner with OVP Venture Partners, a Kirkland-based venture-capital firm that specializes in early-stage companies. "The current economic situation has almost no bearing on what we do."

On the other hand, venture capitalists aiming at mature firms eager to go public or to be acquired by a larger company may be acting with more caution, as jittery markets tend to shut down those opportunities.

There's also some uncertainty in the biotech sector, as an embattled U.S. Food and Drug Administration is being pressured to strengthen the regulatory process for new drugs, said James Thomas of Thomas, McNerney Partners, a health-care venture firm.

Nevertheless, industry officials expect venture investing to remain active.

"We do not expect to see significant declines in investment levels in the coming years," said Mark Heesen, president of the National Venture Capital Association.

Delayed IPOs could even increase the amount of venture capital invested in the upcoming months, as market-ready companies that expected public financing for their growth may have to spend a few extra months under the wing of their venture backers.

"Some of these portfolio companies need to stay unrealized in our portfolio longer," Saberi said. "On the other hand, we don't want to get in the way of the growth they're anticipating."

Ángel González: 206-515-5644 or agonzalez@seattletimes.com