Seattle and the Pacific Northwest are bucking national trends for startup funding.
The flow of venture capital dollars to U.S. startups dropped slightly during the second quarter, coming in at $29.3 billion from April to June. That was down 2 percent from the first quarter of the year, according to Ernst & Young.
But in the Pacific Northwest, total funding nearly doubled to $846 million in Q2 across 51 reported deals, up from $441 million in Q1 2019 across 41 deals, according to data from GeekWire’s startup funding tracker. (That was down from a total of more than $900 million a year ago, in Q2 2018, when big deals for Seattle-based pet-sitting marketplace Rover and Portland-based product development tech company Jama Software lifted the total.)
In the most recent quarter, Seattle startups drove a majority of the funding, including recent huge rounds for newly-minted unicorns. In April, sales automation startup Outreach raised $114 million, pushing its valuation to $1.1 billion. The next month, identity authentication provider Auth0 raised $103 million, as its value also surpassed $1 billion.
Top 10 PNW Funding Deals, Q219
Out-of-town investors led the above rounds, following a trend of outside VC firms paying more attention to Seattle companies.
Another trend: the Seattle-area startups with the five largest rounds in Q2 — Outreach, Auth0, Highspot, Zenoti, Flexe — are all led by CEOs who previously worked at Microsoft. A recemy GeekWire analysis found that 46 of the companies on the GeekWire 200, our index of top privately-held startups in the Pacific Northwest, are led by former Microsoft employees, demonstrating the effect that a large tech giant can have on a startup ecosystem.
Despite the big numbers this quarter, Seattle still trails cities such as San Francisco, Boston, and New York by a wide margin when it comes to venture capital dollars. The Bay Area accounted for 47 percent of all capital raised in the U.S. at $13.7 billion, according to EY. New York and Boston came next, but both saw decreases of 35 percent and 10 percent, respectively, for dollars invested.
Giant rounds made up a large chunk of Q2 funding in the Pacific Northwest, following a national trend. As venture capital firms continue to raise bigger and bigger funds, “mega rounds” are becoming more common. The number of rounds above $100 million nearly tripled from 2016 to 2018, CB Insights found.
But there were also a number of smaller seed rounds for early-stage startups in the region including Armoire, Sound Commerce, Adaptilab, Showdigs, Medcurity, MDMetrix, Bottomless, Brave Healthcare, Rebellyous Foods, and others.
Seattle-based seed-stage investors also raised new funds in Q2, including Maveron, Founders’ Co-op, and Madrona Venture Labs.
The declining trend in funding nationwide shouldn’t cause concern for entrepreneurs and investors, EY said. “While the pace of venture capital investing slowed slightly during the second quarter of 2019 after a record Q4 2018, this should by no means raise alarm bells. VC investing is already outpacing 2018, and the market is primed for strong near-term VC activity,” EY wrote in a blog post.
Venture capital funding in U.S. companies reached $99.5 billion in 2018, the highest since 2000.
Listen to a discussion of the trends on this episode of the GeekWire Podcast.