GeekWire readers have been engaged in an active debate over the past few days on the ailments facing the Seattle startup community. Some have argued, including guest columnist Marcelo Calbucci, that it is a money/support problem while others, including guest columnist Jonathan Shapiro, have pointed directly to the lack of investment-worthy startup ideas being incubated here.

Whatever the problem is, the latest numbers from the MoneyTree report from PricewaterhouseCoopers, the National Venture Capital Association and Thomson Reuters, starkly showcase the dilemma. Washington state’s share of the venture capital investment pie shrunk during the second quarter as $122 million was invested here.

That’s down 21 percent over the same period last year.

Top 20 states for VC investment in the U.S.

But what’s even worse is that other states are gaining momentum, something I pointed out in my story last week: “Are VCs sleeping in Seattle?”

Consider this: During the second quarter of last year, Washington ranked fifth in terms of venture capital dollars when compared to other states. Now, according to the latest report, the state is ranked 10th.

Stating the obvious here, but that’s not a positive trend.

Over the years of covering the venture capital beat, Washington has pretty consistently ranked fifth or sixth in terms of dollars invested, sometimes moving up, sometimes falling down. But falling to 10th — behind states like Virginia, Colorado and Illinois — is a big drop.

Now, there are certainly a lot of caveats here to consider. And slippage during a single quarter is not the end of the world.

For one, Arizona rose up the charts with a whopping $152 million in venture capital investments. But, it is certainly worth pointing out, that the money was spread across just five deals.

Washington state ranked sixth with 27 deals, meaning money is flowing here just in smaller chunks. There are also some good things percolating in the venture capital market, with at least one very large deal set to close this month. (More on that soon).

Nonetheless, it does appear as if the state is backpedaling a bit. In my years of covering the venture capital beat around Seattle, I don’t recall a ranking this low. (I’ve reached out to the NVCA to get more clarification).

As startup veteran Janis Machala pointed out in the comments of a recent GeekWire post, Washington state just doesn’t have a large base of venture capital firms.

It has been that way for years, and still money has flowed. What has changed is that some of the out-of-state firms — including Polaris Venture Partners and Arch Venture Partners — have become less active in the region. (Polaris, as a matter of fact, closed its Seattle office earlier this year with one of the partners of the firm telling VentureWire that the market never really developed as they anticipated).

Another factor is that some of the larger Seattle firms, including Ignition Partners and OVP Venture Partners, are spending more of their time doing deals outside of the region.

Meanwhile, a state such as New York — which during much of the past decade ran just ahead of Washington in terms of VC dollars — are pulling away. According to the MoneyTree report, New York companies pulled in $1.3 billion last year. That’s more than double the $624 million that flowed into Washington state.

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Comments

  • http://twitter.com/goodchemist Alex Hillinger

    Could it be that WA based startups are just leaner and more digital, and therefore require less VC cash than more materials intensive startups?

    • Dave

      Alex, I was thinking the same thing. Seattle’s strengths, particularly in consumer and media type plays, are less capital intensive than other investment types although overall deal flow does seem to be down. I would be curious what types of investments are in NY. For example, I would guess Boston’s average investment is typically pretty high with its strong life sciences presence which generally has a much larger deal size than early stage software/web investments. 

  • http://twitter.com/cliffrudolph Cliff Rudolph

    ugghh!

  • Consultant

    Washington State the worse when it comes to Business, especially new Business. Washington State, more specifically the Bureaucracies of Seattle and King County are so arrogant as to think the Taxpayers are here just to support more government programs…..It is small Business that drives the economies, not government.  Each time a new Business, a start up, there is revenue and jobs…Each time government gets involved, there is Caos…..Washington State has a Bureaucracy, especially those in the Dept. of Ecology where they actually have gone and created a Corporation called the WMMFA to collect Computer Monitors, Processors and Television Sets…The DOE is BLATANT in its disregard for the well being of those that must work with this POLITICO Corporation, a Conflict of Interest exist and should be shed, it should be eliminated just closed down.  Private Business can do what WMMFA does and do it better….Just one more example of government intervention.  Teddy Roosevelt once said, “Behind the ostensible government sits enthroned a government acknowledging no allegiance and owing no responsibilty to the people”  it was Bureaucracy then and it’s worse today.  Government in Perpituity is just wrong, never is their a Tax, Program or Fee that goes away when no longer needed.  Take a look in this state at DSHS…………….OMG the waste there, the lack of competent workers, it’s like an Ant Farm, all roads lead to nowhere…..Less Government and more Freedom

  • http://twitter.com/AndySack Andy Sack

    I don’t know what to say to this post. Grumble, grumble seems appropriate.  Part of me wants to say — this is the wrong metric to focus on and the amount of equity invested in a state doesn’t matter. But alas — that would be nieve and wrong.  The amount of equity invested does matter and the fact that Washington has slipped sucks.  

    I think the state of Washington and the government officials should pay attention to this report and do what a number of these other states do — funnel state pension money into the creation of new companies in their state. I also think that amount of revenue and # of jobs created are better measures and indicators of success of a state’s new technology companies than the amount of equity invested.   

    All that said, I think that this report is not a reason to shoot or bitch at the current Seattle VC’s as not doing enough.  They’re funding what they think makes money (period). Until we continue to demonstrate success in building great companies with great exits, we’ll lag behind other cities. 

    This week is a good week for Seattle. Zillow is IPO’ing.  There’s lots of new companies that are being formed with dreams of big exits and IPO’s. This report is just like the US News & World report on rankings of schools or test schools.  We move down in ranking this year: grumble, grumble.  Back to work. Let’s kick some ass next year.  

  • Victor

    In all seriousness, does anyone of the startup guys out there follow or even care about reports like this? Is something like this a deciding factor to start or not to start your business in Washington? I doubt it very much. 

    The price action in Zillow, Pandora and Linkedin in the past few months only point to one obvious thing, there is a dearth of publicly traded and fast growing tech company in the market place. VCs are not stupid, they will be more than happy to feed that appetite. They will have to go to places that has the talent, support and infrastructure that can crank out the kind of stock the public will be clamoring for. Last I looked, Seattle is still one of the few places in this country that has all the ingredients. I just think we are lagging as usual (like our late rise and fall in real estate). 

    This quote from newly minted VC, former secretary of Treasury Larry Summers said it well (although he is probably a bit self-serving):

    “The Internet, the last time there was an Internet bubble, was 120 million people dialing up.
    The Internet today is two billion people and two billion mobile devices, with wireless connectivity at a far more rapid pace. Today, the businesses have cash flow, which they didn’t ten years ago. So I think it’s a little facile to assume that just because the numbers are big, that it’s obviously a bubble.”So regardless where Seattle ranks, if you are an entrepreneur, you should be so excited you will lose a lot of sleep at the prospect of all this opportunity.

  • Guest

    I’ll trade you Portland’s #20 status for Seattle’s #10 if that makes you feel any better.

  • http://www.adela.vn/dich-vu/thiet-ke-to-roi-to-gap.html Thiet ke to roi

    I think the state should have a tough measures to adjust the current complex.

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