It’s getting quiet in Seattle startup land.

Venture capital funding to Seattle-based startups hit a 6-year low in the first quarter amid the broader tech slowdown driven by economic uncertainty and higher interest rates.

There is less urgency from investors, said Melinda Haughey, CEO of Seattle mapping startup Proxi. She raised a small amount of cash earlier this year to help extend runway and experienced a vastly different funding environment compared to a year ago.

“There’s just been a lot of silence,” Haughey said.

Nationally, venture capital investments tumbled 45% in the first quarter when compared to the same period last year, according to a report from EY.

GeekWire’s fundings list, which tracks investments across the Pacific Northwest, shows a 79% drop in capital raised during Q1.

“Fewer deals, lower valuations, and less capital being raised overall,” said John Brust, a partner at Seattle law firm Wilson Sonsini who advises entrepreneurs.

A Q1 report from Wilson Sonsini shows median raise amounts falling in Q1 across every stage, even below pre-pandemic levels.

The report also showed that down and flat rounds — raised when a company’s valuation has not increased, or even decreased — made up nearly 40% of all private company equity financing rounds in Q1.

(Wilson Sonsini chart)

The dip is a correction to the pre-pandemic period, before the public tech stock boom and record venture capital funding. It quickly shifted strategy decisions for founders and investors.

“It has changed the way that we think about how to spend our next six months,” said Haughey, who co-founded Proxi in 2020.

Kirby Winfield, who leads Seattle pre-seed VC firm Ascend, said he’s seeing smaller seed and Series A rounds compared to previous years. “The goal posts have definitely moved,” he said.

Seattle vs. the rest of the country

Seattle, where are you? (EY chart)

Seattle startups raised just $512 million in Q1, according to EY — less than Phoenix, Washington D.C., and Nashville.

That caught the attention of some folks last week who were surprised that Seattle didn’t rank among the top 10 markets in Q1. Seattle was also behind Philadelphia and Miami in number of deals.

Given that Seattle is home to two of the world’s largest tech companies — Microsoft and Amazon — and is frequently ranked as one of the top global cities for tech talent, the lack of venture dollars to startups can be a head-scratcher.

Washington state has 9.4% of its workforce in tech, the highest percentage nationally, according to data from CompTIA. And despite recent layoffs across the industry, net tech employment in Seattle is expected to grow by 3.6% this year.

The large companies suck up a lot of that talent. Alphabet, Meta, Salesforce, and other Silicon Valley giants have sizable engineering offices in the region. That makes it difficult for startups to recruit employees and compete on salary or benefits, though some say that tide may be shifting given the layoffs and pullbacks.

Critics often point out that Seattle doesn’t have enough local venture capitalists. Several firms raised new funds in recent years, though some including Madrona and Flying Fish are now expanding their footprint to invest outside of the Pacific Northwest. Madrona, the longtime powerhouse of Seattle venture capital, backed companies based in Tel Aviv, New York City, and San Francisco in recent months.

The Q1 lull in Seattle may be a temporary blip. Looking at the past 12 months, data from Carta shows Seattle’s King County ranked atop a list of total invested capital for counties outside of California, Massachusetts, or New York.

(Carta chart)

Heather Redman, managing partner at Flying Fish, said she isn’t overly concerned with the latest venture reports. But she said it’s a reminder of the work needed to boost Seattle’s startup ecosystem.

“More VCs, more support for entrepreneurs learning how to start and grow companies, more support for talented laid off folks to stay in the region, more people downtown, more meetups,” Redman said. “Just more.”

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