Seattle startups are facing fewer down rounds than companies in the Bay Area and New York City, signaling a slightly more modest retrenchment in the Emerald City amid the broader tech market downturn.
Through the nine months ended September, about 12% of funding rounds in Seattle resulted in lower valuations, compared to the Bay Area’s 17% and New York’s 24%, according to data provided to GeekWire from equity management company Carta. That compares to a national average of about 17%.
Down rounds, which describe funding raised at lower valuations than previous rounds, have plagued many early-stage companies in 2023 amid elevated interest rates and belt-tightening from venture capitalists. Investors are putting more weight on financial metrics such as revenue, driving down prices for startups unable to hit on their milestones.
Leslie Feinzaig, Seattle-based founder and general partner at Graham & Walker, said Seattle founders tend to focus more on revenue than those in other regions. She said this provides two key benefits: it aligns with investors’ growing appetite for profitable ventures and reduces the need for additional fundraising.
“If fewer local companies are raising from a point of need, it stands to reason that we’ll see fewer down rounds,” Feinzaig said.
At the same time, Seattle startup founders tend to have less “sizzle” and more “steak” than other tech hubs because of the region’s technological chops, said Kirby Winfield, founding general partner at Seattle-based pre-seed venture capital firm Ascend. He said the focus on substance over flashiness means Seattle startups often sidestep the “hot round” or “capital as moat” phenomena, where companies raise large capital rounds to outpace competitors.
“Seattle founders are not as slick as Bay Area founders, and sometimes struggle to paint the picture of their startup being a rocketship in the making,” Winfield said. “But it turns out they’re really good at actually building the rocketship.”
Chris Devore, founding managing partner at Seattle-based Founders’ Co-op, said Seattle’s innovation sector has always been “nuts and bolts,” with a strong pool of talent in areas including cloud infrastructure and business process automation.
“The products and companies we build here are more likely to solve real problems for customers and charge real money for doing so, which means they hold up better when investors come to their senses,” he said.
Not every Seattle startup has been insulated from market conditions. Well-funded trucking marketplace company Convoy, once valued at $3.8 billion, swiftly shut down last month after running out of capital amid a slowdown in the logistics market. It’s among more than 540 U.S. startups that have folded this year, up from 467 all of last year, according to Carta. Other startups resorted to layoffs to cut costs.
Julie Sandler, co-founder and general partner at PSL Ventures, said founders in the Bay Area and New York often chased big funding rounds before the market dipped. She said this led to inflated valuations and pushed riskier spending.
In contrast, Seattle’s entrepreneurs focused on raising cash tied to achieving specific goals, rather than just aiming for large funding rounds, Sandler said.
“Certainly some late-stage Seattle companies got out over their skis in the midst of the market exuberance, and we may see some reverberations of that in the years to come,” she said. “But the valuation concerns I am seeing here locally are less significant than what peers of mine are seeing across the Bay Area and New York City.”
