State, nation still see venture-capital slide

Venture-capital investments in U.S. startups fell for a fifth consecutive quarter, though a boost from the previous two quarters suggests increased confidence in the economy.

Similar patterns occurred in Washington state in the third quarter, according to figures being released today.

The figures, from a survey conducted by PricewaterhouseCoopers, Thomson Reuters and the National Venture Capital Association, show that during the July-September period, total investments nationwide dropped 33 percent from a year ago to $4.81 billion.

And the number of deals completed dropped to 637 — 357 fewer than the year-ago period.

In Washington state, venture-funded companies received $181.9 million, a decline of nearly 21 percent from the previous year. The number of deals in the quarter — 22 — also dropped, from 37 in the year-ago period.

As the economic downturn has dragged on, venture capitalists have become increasingly cautious about investing in startups.

The dismal economy has made it less likely startups can find a buyer or complete initial public offerings. That means venture capitalists have more difficulty seeing returns on their investments, leaving them reluctant to pour money into new companies.

Still, even as overall figures may be lower than in 2008, the amount of funding was higher in the third quarter than in the first and second quarters of this year.

Tracy T. Lefteroff, global managing partner for PricewaterhouseCoopers' venture-capital practice, said the pace of overall venture-capital investments may climb in the next few quarters as the economy improves, assuming the market for IPOs and acquisitions gets better.

Biotechnology continued to receive the most venture capital in the quarter, with $905.1 million in investments, down 25 percent from the year-ago quarter.

Though investments in this field have dropped, venture capitalists have continued to invest heavily because large pharmaceutical companies are still interested in buying startups developing promising drugs.

Investments in clean technology — which includes alternative energy, recycling, conservation and power-supply companies — totaled $897.5 million, down 14 percent year over year.

Internet investments fell 22 percent year over year to $842.6 million, while software investments sank 52 percent to $622.4 million during the period.

In Washington, medical devices and equipment drew the most funding of any category, with $71.8 million for the quarter. Virtually all of that came from investments in two Seattle companies: Calypso Medical Technologies ($55 million) and Uptake Medical ($13 million).

Other top-funded categories in the state included software at $40.1 million and media and entertainment at $29 million (all to one company, Smith & Tinker, a Bellevue electronic game and toy maker).

Nationally, the amount of money that went to startups receiving their first round of venture-capital financing fell 59 percent from the year-ago quarter to $633 million — the lowest level since the survey began in 1995.

There were 155 first-time deals in the third quarter, down from 287 last year, and essentially consistent with the first two quarters of this year. Most of these deals were with companies in the earlier stages of development.