State venture-capital funding surges in second quarter
Washington companies brought in $359.2 million in 32 deals in the past three months. Except for the fourth quarter of 2013, when Juno Therapeutics received a whopping $120 million, the past quarter was the best showing since the fourth quarter of 2007.
Seattle Times business reporter
Venture-capital funding in Washington and the nation had a strong run in the second quarter, according to two reports released this week.
Washington companies brought in $359.2 million in 32 deals in the past three months, a nearly 62 percent increase from the same quarter last year and more than double what investors dished out last quarter, according to the MoneyTree report being released Friday by PricewaterhouseCoopers and the National Venture Capital Association.
Except for the fourth quarter of 2013, when Juno Therapeutics received a whopping $120 million, the past quarter was the best showing since the fourth quarter of 2007.
Coupled with the steady number of deals Washington continues to receive and the initial public offerings coming out of the state, Washington is in a healthy position, said Stephen Sommerville, an assurance partner in the Seattle office of PricewaterhouseCoopers.
“And it doesn’t appear at this point to be petering out anytime soon,” he said.
The nation outpaced the state with an 80 percent increase in investments compared with the second quarter of 2013. The report, based on data from Thomson Reuters, said venture capitalists invested almost $13 billion in 1,114 deals during the quarter, compared with $7.2 billion in 1,000 deals the year before.
The total amount invested nationally marked the largest quarterly total since $13.1 billion was invested in the first quarter of 2001.
“Before alarmists declare a repeat of the dot-com bubble, it’s important to keep in mind that a lot of this activity was driven by a handful of eye-popping investment rounds, including a record-setting funding round of $1.2 billion,” said Bobby Franklin, president and CEO of the National Venture Capital Association.
That $1.2 billion went to San Francisco-based Uber Technologies, the ride-services company that has been part a year-and-a-half debate in Seattle over how to fairly and safely regulate all ride services, including taxis and for-hire vehicles.
The Uber deal is the largest quarterly investment recorded by the MoneyTree report since it began reporting on venture-capital investing in 1995.
Another venture report released this week — by Dow Jones VentureOne on Thursday — showed different numbers than MoneyTree’s because of variances in their methodologies. Both reports, however, indicate a national and state rise in investment amounts year over year and quarter over quarter, though the percentage increase varies.
Dow Jones reported $364.4 million invested in Washington companies during the quarter, a 21 percent increase from the second quarter last year — but more than three times the increase from quarter to quarter.
The report showed a 60 percent increase nationally from the second quarter last year, but only a 21 percent increase over last quarter.
According to the MoneyTree report, the majority of Washington’s deals involved the software industry, which captured 14 of the 32 deals. The industry also claimed the largest amount of investment dollars — $140.1 million.
The next largest was media and entertainment, with $52 million in six deals.
Nationally, the software industry received $6.1 billion, which marks the fourth time since 1995 that investments in software companies have exceeded $6 billion in a single quarter, the report said. Uber is included in the software sector.
Bellevue-based Smartsheet.com, another software company, brought in $35 million.
“Historically software has always been a very large component in total funding in Washington,” Sommerville said. “You can easily build companies of some scale in the software area.
“When you think of biotech, it takes a lot of investment and time to build up. Software is a little bit more nimble and companies can more quickly develop their products and deliver to market.”
The largest Washington investment this quarter was a $41 million expansion-stage investment in Seattle-based ExtraHop Networks, which sells products companies use to analyze data moving across their networks.
Avvo, known for its vast directory of lawyer profiles, client reviews and online forums for legal advice, was close behind with $37.5 million.
Early-stage funding continued to lead in Washington in terms the number of deals, bringing in 14 of the 32. However, expansion-stage companies, which usually means a company has been in business more than three years, brought in 45 percent of the total dollars this quarter, or $161.1 million.
The same trends were true nationally — 47 percent of the 1,114 deals were early stage, while 44 percent of the total funding went to expansion-stage companies, which captured $5.7 billion.
“You do want early-stage companies to be funded — it would be a warning sign if they were not,” Sommerville said. “But what you generally find is those initial rounds — with the exception of the Junos of the world — receive smaller funds.”