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Washington firms buck U.S. trend on venture capital

Venture capitalists threw more money at Washington companies last quarter, a sharp contrast with what happened nationwide, where investors showed restraint and discipline, a survey said today.

Venture-capital investing across the nation fell in the first quarter, while investing in Washington soared, according to the MoneyTree Survey compiled by PricewaterhouseCoopers, Thomson Venture Economics and the National Venture Capital Association.

By Tricia Duryee
Seattle Times Eastside business reporter

http://seattletimes.nwsource.com/html/businesstechnology/2001913570_venture27.html

In the first quarter, 26 deals in Washington received $208.7 million, nearly double the $111.4 million invested in 22 deals in the prior quarter.

But across the United States, 618 deals received $4.6 billion, down from the prior period, when 741 deals raised $5.3 billion.

"The term I’d use is rational exuberance as opposed to irrational exuberance," to describe the national mood, said Jim Tullis, a principal at Tullis Dickerson, a Greenwich, Conn.-based venture-capital firm, who participated in a conference call to discuss the results.

Of 19 regions in the United States, the Northwest ranked eighth for most dollars invested, falling behind other regions such as Silicon Valley, New England and the Midwest.

The MoneyTree Survey largely confirmed a similar report released Monday by VentureOne, of San Francisco. VentureOne said investments in Washington rose sharply last quarter. But it said investments across the country edged up slightly, although with fewer deals.

The caution displayed nationally has to do in part with venture capitalists remembering the recent bubble, when too much capital was invested in too many companies. The bubble burst in 2000, and investors lost millions as the companies went under.

Locally, the spending spree is being spurred, in part, by competition, investors say. In the first quarter, venture capitalists, who were slow to invest previously, found themselves offering to fund a company that already had a couple of offers on the table. Previously, the local market was much slower, with companies lucky to get one offer. Likewise, VCs could take their time.

The increase in funding also reflects companies being able to raise larger sums from investors. For instance, the same number of deals — or 26 — were completed in Washington in the first quarters of 2003 and 2004. However, the later quarter raised $76 million more.

Robert Overell, general partner with Frazier Healthcare in Seattle, said that after companies went through a dry spell, they know how hard it is to raise money and are willing to take more when they can get it. At the same time, investors are more comfortable investing more money because it gives the companies a better chance to meet their goals.

Larger funding amounts are a trend nationwide, too. But investors are looking before they sign a check. The MoneyTree Survey found recent rounds took more time to complete than before. On average, it took companies 15.7 months. In previous years, it had taken as little as nine months. Investors also are funding later-stage companies more than young companies. Locally, in the first quarter, the less mature companies received $23.3 million, while later stage received $103.3 million.

Despite the local trend in investing more, the nation is reflecting more cautious and patient times, said John Taylor, vice president of research at the National Venture Capital Association. "What this shows is that there is a theme of capital efficiency and making do," he said.

Tricia Duryee: 206-464-3283

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