Top 5 First-Quarter Venture Deals in Washington State; Local VCs Weigh In on Downturn

Xconomy Seattle — 

[Updated April 18 with correction to Madrona Venture Group’s new investment in Q1—Yieldex, not PetraVM (which was Q4)]

OK, the venture capital stats are in for the first three months of 2009, and surprise—they’re not very pretty. In fact, venture capitalists and all of us who follow their activities should probably just retire now while we still can.

Or not. As Lucinda Stewart of Kirkland, WA-based OVP Venture Partners puts it, “We are used to rain in the Pacific Northwest, but we are seeing breaks in the forecast.” She is referring to a few encouraging signs in the regional VC data—namely that the number of deals and dollars, though down compared with the first quarter of 2008, are down by less than the national average. What’s more, according to one major survey, the number of deals and the total investment in those deals are actually up compared to the fourth quarter of 2008.

According to Dow Jones VentureSource, venture capitalists invested $121.8 million in 22 deals in Washington, which is down substantially compared to the $256.4 million invested in 27 deals in the first quarter of 2008. But it’s a slight improvement over the $116.8 million invested in 19 deals in the last quarter (fourth quarter of 2008).

You also have to look at the stage of the various deals, Stewart says. “I’m encouraged by the seed-stage investing numbers, which are only slightly down,” she says. “In terms of angels, it doesn’t look like they’ve disappeared. That’s a decent sign for the future of the Northwest.” Also, she notes that half of the deals in Washington had an outside lead or co-lead investor.

Stewart says OVP did six follow-on investments last quarter, including deals with Seattle-based Adapx and Bellevue-based Talyst, a healthcare software firm. “Talyst has a couple hundred hospital installations, so I was very concerned they were going to suffer [in the current climate]. But they beat their Q1 numbers,” she says.

Greg Gottesman of Seattle-based Madrona Venture Group says his firm had a very active first quarter, making one new investment (Yieldex) and seven follow-ons. “That’s as many as we’ve made in years,” he says. “Times are more difficult, and companies do have to do more with less.”

“Everybody is continuing to make investments,” says Andy Dale of Seattle-based Buerk Dale Victor. “It’s certainly not business as usual. Portfolio companies are slowing down in revenue and hiring, and we’re all helping them work through this economy…We’ve got to hunker down and focus on making what we have work.” He continues, “Financing is one perspective. But are they creating new partnerships, new products, getting things done?” Within BDV’s portfolio, Dale points to Bothell, WA-based Halosource, which recently got EPA approval for its water-purification system.

What’s more, Gottesman adds, “A lot of companies are taking advantage of current market opportunities.” For example, IT-optimization firm Apptio, based in Bellevue, is working with Amazon Web Services on a cloud-computing partnership. “It’d be a mistake for anyone to say times are rosy,” he says. But when the bubble burst in 2000-2001, that was “self-inflicted pain. This time there are forces outside the tech world that have caused the downturn.”

By Xconomy’s tally, here are the top five venture deals (and investors) in Washington from the first quarter of 2009. All were follow-on investments:

—Pathway Medical Technologies, $40 million (Forbion Capital Partners, HLM Venture Partners, Oxford Bioscience Partners, Latterell Capital Management, Cooperative AAC, Giza Venture Fund). Luke broke the news of the medical device company’s funding here.

—nLight Technologies, $10.7 million (Menlo Ventures, Mohr Davidow Ventures, Oak Investment Partners, Smac Partners; Andy Dale is also an investor in the company). Xconomy published a short profile of nLight co-founder and CEO Scott Keeney here.

—PivotLink, $10 million (StarVest Partners, Trident Capital, Emergence Capital Partners). Xconomy reported on the Bellevue, WA, and San Francisco-based business intelligence software firm here.

—Adapx, $9 million (UV Partners, OVP Venture Partners, Paladin Capital Group). We profiled the Seattle company’s financing, digital pen technology, and business strategy here.

—Skytap, $7 million (Ignition Partners, Madrona Venture Group, WRF Capital). Xconomy profiled the Seattle software startup and its strategy in the crowded field of cloud computing here.