More money flowed to startups in 2010 than previous year

Investments in startups hit bottom in 2009 and began growing again in 2010, pointing to a warming environment for entrepreneurs to seed new companies.

U.S. venture-capital funds invested 19 percent more in 2010 than in 2009, sending $21.8 billion to companies. That compared with $18.3 billion in 2009, according to a 2010 MoneyTree report released Thursday by PricewaterhouseCoopers and the National Venture Capital Association with data from Thomson Reuters.

Investments in Washington state grew 10 percent, from $555 million in 2009 to $613 million in 2010.

"It's very clear the market is looking for, and accepting of startups," said Gerry Langeler, a partner for Kirkland-based Olympic Venture Partners on a conference call with reporters Thursday. "The flip side is it's not a time like 10 years ago, when you could put your hand in the air and money would hit it."

The report comes as funding and mergers have flourished in Seattle. At the end of last year, Seattle data-storage company Isilon found a buyer in EMC for $2.25 billion. Seattle-based Attachmate bought Novell for $2.2 billion in November.

The 2010 numbers were still far below the $1.4 billion that flowed into Washington companies in 2007, before the financial meltdown started. The state hit its high in 2000 with $2.9 billion.

The state had 116 deals in 2010, compared with 103 in 2009. Nationally, there were 3,277 deals in 2010, compared with 2,927 in 2009.

In the fourth quarter of 2010, Washington state companies received $114 million in venture funding, a 32 percent drop from the third quarter.

Langeler said not to read too deeply into the quarterly trends because the state numbers are relatively small. Nationally, venture funding grew 1 percent in the fourth quarter to $5 billion.

The largest areas of investment in 2010 were software, biotechnology and industrial energy-related companies.

More deals also were done with early-stage companies, and observers said it was a positive sign. In 2009, more mature companies were getting secondary rounds of funds instead of new businesses scoring new funds.

"I would call the investing environment today as fairly normal," said Langeler. "Nice volume of deals, a couple of frothy areas but not too many. It's back to the future of sensible investing."

Investing also seems to be accelerating in 2011. Facebook has raised $500 million in private equity from Goldman Sachs and a private investor this month. Groupon, a social coupon website, raised $950 million this month as well.

Locally, web humor network Cheezburger in Seattle announced Tuesday it had raised $30 million in venture funding.

Langeler said the Groupon deal has pushed valuations higher for companies like DataSphere, a Bellevue company it invested in that provides technology for local online advertising.

Len Jordan, a partner at Madrona Venture Partners, said the venture fund made four investments in 2009 and six in 2010.

Since the start of 2011, Madrona has made three investments. "I don't think we're going to keep up the pace of a new investment a week, but we like our pace and we've been accelerating," Jordan said.

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