Venture Capital: Up, and down – More deals than 2003; amount falls from last quarter

The number of venture capital investments in Washington state last quarter nearly tripled compared with the year-ago period, in contrast to a leveling trend nationally.

By DAN RICHMAN
SEATTLE POST-INTELLIGENCER REPORTER

http://seattlepi.nwsource.com/business/196479_venture23.html

Here, 24 companies raised $179.4 million in venture capital during the quarter ended Sept. 30. In the year-ago quarter, nine companies raised $79.9 million. In dollar terms, the increase is 125 percent, but it’s roughly 20 percent less than was raised in either of the two prior quarters.

"It was a good quarter," said Bob Nelson, managing director of ARCH Venture Partners in Seattle. "I won’t say the market is roaringly great, but it’s healthy and rational, and we’re in a steady state. We have high-quality VC firms investing in companies here, which indicates the maturity of this market and the potential success of those companies."

Nationwide, venture capital investment slowed after five consecutive quarters of increases, with $4.56 billion invested in 467 deals, said Ernst & Young and VentureOne in a quarterly report.

Both the number of VC deals and the amount invested declined by 4 percent nationwide compared with third-quarter 2003.

The nationwide distribution of VC deals by industry last quarter continued to follow a pattern: between 40 and 50 percent more information technology investments than health care investments.

The majority of the investments (272) were made in the computer arena, while a smaller number (119) were made in the health care field.

Other deals were made in miscellaneous consumer or business products or services.

That same pattern held true in Washington state, with 15 information-technology investments and seven health care deals.

Washington ranked fourth nationally by number of deals last quarter and sixth in terms of dollars invested. California had the most VC deals — 196 — followed by Massachusetts and Texas. Those also were the top three states in companies raising the most venture capital, with those in California raising $2.1 billion.

Nelson said the single biggest inhibitor of future VC activity would be sweeping Democratic victories in the White House and Congress.

"Any potential radical change in the health care system could hurt pharmaceutical companies, which provide development money," he said.

"It could hurt biotech companies’ ability to raise money and could make the regulatory environment more difficult — one of the primary barriers to biotech’s success."

WASHINGTON’S TOP DEALS

Here are the top five venture capital deals in the state in the third quarter:

Trubion Pharmaceuticals, Seattle

# $32 million

# Service: Developer of medicines called small modular immunopharmaceuticals, used to treat inflammatory disease and cancer

# Investors: ARCH Venture Partners, ATP Capital, Frazier Healthcare Ventures, Oxford Bioscience Partners, Prospect Venture Partners, Venrock Associates

LipoSonix, Bothell

# $27 million

# Service: Developer of ultrasound-based technology for non-invasive cosmetic surgery as an alternative to liposuction surgery

# Investors: Accuitive Medical Ventures, Carlyle Group, Delphi Ventures, Essex Woodlands Health Ventures, Pinnacle Ventures, Schroder Ventures Life Sciences, Three Arch Partners, Versant Ventures

MFORMA, Kirkland

$19 million

# Service: Provider of wireless entertainment content

# Investors: Bessemer Venture Partners, Draper Fisher Jurvetson, eFund, General Catalyst Partners

EsophyX, Redmond

$12 million

# Service: Developer of an endoscopic device to treat gastroesophageal reflux disease

# Investors: Advanced Technology Ventures, Foundation Medical Partners, MPM Capital

Radiant Research, Bellevue

$11.5 million

# Service: Developer of clinical drug services for the biopharmaceutical and medical device industries

# Investors: ABS Capital Partners, Caltius Capital Management, Mayfield, Oak Investment Partners, Pacific Venture Group, Salix Ventures

P-I reporter Dan Richman can be reached at 206-448-8032 or [email protected]