Venture-capital funding in state plunges in 2009

Venture-capital investment in Washington state fell to its lowest level in six years, marking a dismal year for any startup that wanted to raise money in 2009.

The total amount invested in Washington state decreased to $555 million in 2009, compared with $935 millionthe year before, a decline of 41 percent. Just two years ago, in 2007, a total of $1.4 billion was invested.

PricewaterhouseCoopers and National Venture Capital Association, with data from Thomson Reuters, reported the numbers Thursday night.

The number of investments in the state fell to 103, compared with 166 in 2008. The largest local investments went to Integrated Diagnostics, a medical-devices startup that raised $30 million, and later-stage investments in PopCap Games and Widevine Technologies, an encryption company.

The decline in Washington state mirrored national investment numbers, which fell 37 percent in investment dollars to $17.7 billion invested in 2009 — the lowest amount since 1997.

"The venture-capital industry had no choice but to slow the investment pace in 2009," Mark Heesen, president of the National Venture Capital Association, said in a statement. He attributed the sluggishness to the weak market for initial public offerings.

Heesen expects an uptick in 2010. The number of deals and dollars invested went up in the fourth quarter of 2009, which makes a rebound likelier for 2010.

"It's a little bit of a 'duh,' " said Lucinda Stewart, managing director at venture-capital firm Olympic Venture Partners in Kirkland. "Nobody's been able to raise money for two years. A lot of funds — they don't admit it — but they are tapped out."

In Washington state, medical devices was the strongest sector based on dollars invested, followed by software. Biotech was a distant third. The software industry closed the most deals in the state, followed by biotech.

Seed companies saw the fewest investments, representing 15 of the 103 venture-capital investments made in 2009. Thirty-two of the investments were made in early-stage companies and the rest went to expansion and later-stage companies.

Stewart said she's seeing a stronger pipeline; any entrepreneur who survived the past two years has to be stronger and shrewd.

"The people that still want to do it are some pretty tough characters who are incredibly focused," she said. "The value of our deal pipeline is better anecdotally than it was from two years ago. To me, what that means is the next couple years is when we'll reap the benefits of that."

More than quantity or size, Stewart hopes to see some high-quality companies rise from the ashes, like "when we had Microsoft and Starbucks and Real Networks and Blue Nile," she said. "What this region needs is an install based of a dozen fantastic companies."

Her firm invested in Symform, a cloud-computing startup, in 2009.

Nationally, the biotech industry was the largest investment area based on dollars. Still, the investment amounts fell by 19 percent from 2008.

Software followed biotech with $959 million invested, but led based on number of investments, with 619 deals closing.

Clean technology fell the furthest, sinking 52 percent in 2009 compared with the amount invested in 2008.

Sharon Pian Chan: 206-464-2958 or schan@seattletimes.com