WordStream’s $12M Round Highlights Dearth of Mid-Stage Tech Funding

A search-marketing startup is making fundraising news, but there are larger forces at work in the tech ecosystem.

Boston-based WordStream has raised $12 million in new funding—$9 million in a Series C venture round led by Baird Capital (Sigma Partners also participated), and $3 million in debt financing from City National Bank. The new money brings WordStream’s total equity investment to $25 million, CEO Ralph Folz says.

WordStream got started in 2007, founded by Larry Kim, to help businesses manage their paid search ads on Google. The software startup says its revenue has increased by a factor of 10 in the past three years. It now has 100-plus employees in Boston.

I recently looked at Series A funding deals in Boston tech, and found some $270 million had been invested in about 40 deals over the past year. My hypothesis was that any funding bottleneck (which is often discussed in the startup world) is probably happening at a later stage in company development.

Let’s look at recent Series C venture rounds in town, in addition to WordStream: Swipely ($20M), SilverRail Technologies ($40M), NetProspex ($13M), Qualtre ($8M), CloudBees ($11.2M), Localytics ($16M), CloudLock ($16.5M), Sonian ($8M), and maybe a few others this year. That’s some activity, but not a lot.

The picture is similar, but more scattered in terms of amounts and sectors, if you look at Series B rounds so far this year: Pixability ($4M add-on), CounterTack ($5M add-on), Newlans ($5M), QPID Health ($12.3M), StarWind Software ($3.25M), InfoBionic ($17M), Circle ($17M), Moontoast ($4.5M), and Mendix ($25M). Of course, let’s not forget e-retailer Wayfair’s $157 million mother of all B rounds. But Wayfair is a different animal, having been bootstrapped for a decade before raising venture capital.

My unscientific conclusion: There’s a noticeable drop-off in tech funding deals (and buzz) after Series A rounds. Not entirely surprising, since many companies don’t grow fast enough to justify another round. The question is whether investors are undervaluing mid-stage companies while they pursue early-stage dreams and late-stage hits. (I previously wrote that the companies in the middle are where more effort is needed to create big success stories in Boston.)

Venture capitalist Fred Destin wrote that Series B rounds are usually the hardest to raise, and he’s probably right. But entrepreneurs and investors also know that the B and C stages are where the real companies get built.

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