Garrett Black April 28, 2014
Boston and Seattle are both known for their picturesque harbors and their unique cultures and cuisine, and while Boston lays claim to a thriving biomedical scene, Seattle is no slouch in that department, housing research powerhouses like the Fred Hutchinson Cancer Research Center. And, of course, Seattle has been a tech hotspot for decades, thanks to the presence of Microsoft, Amazon and other high-profile software players. Boston, too, has its share of technology startups.
But with yesterday’s news that Warburg Pincus will be buying VC investors’ stakes in Seattle-based PayScale, we here at PitchBook had to wonder: how has Seattle’s VC scene been faring recently? And to really take the pulse of a city’s VC scene, one must compare it to a peer, so our thoughts naturally turned toward Seattle’s coastal counterpart—Boston.
A quick dive into the PitchBook Platform reveals that VC activity in the city of Seattle has steadily risen in the past few years from a low of 84 financings in 2009 to a peak of 124 in 2012, before declining slightly last year and slowing somewhat further in the first quarter of 2014 (similar to the overall U.S. VC scene, which has seen declining deal flow in recent quarters). Unsurprisingly, information technology companies attract a large portion of VC financings in Seattle each year, though that percentage is growing, from 43.5% in 2010 to 51.3% in 2014. Healthcare is the next biggest segment, clocking around 20 deals a year on average from 2010 to 2013.
One interesting thing to note is that nearly 40% of Seattle’s VC financings come from Washington-based investment firms like Madrona Venture Group and Ignition Partners. Of the 663 VC rounds for Seattle-based companies since 2008, 255 had at least one Washington-based VC firm as an investor. The aforementioned Madrona and Ignition invested in a combined 92 Seattle rounds. This seems to show that local investors like investing in local companies.
Which companies are responsible for the biggest deals in the city? Juno Therapeutics may come to mind, having recently completed a whopping $176 million Series A. But Redfin, Apptio and, of course, PayScale, have also collected sizable funding from VC investors (before being acquired by Warburg Pincus, PayScale completed several rounds of financing, including an $8 million Series D in 2011 in which Madrona Venture Group participated). And while on the topic, it’s worth nothing that Seattle has had a couple of high-profile IPOs in the last year, with Tableau Software and zulily going public, the latter of which no doubt made local VC firm Maveron a hefty penny.
But enough about Seattle. What about Boston?
Similar to Seattle, Boston proper has seen its VC activity rise in the past few years before decreasing slightly over the last year. 2009, its least active year, amassed 50 deals, with 2012 cresting at 129, before dropping to 127 last year. However, with 44 deals thus far in 2014, perhaps VC investors are regaining enthusiasm for Boston-based companies.
What makes Boston tick? Well, the city’s status as a noted biomedical hotbed and hosting some of the world’s top universities probably doesn’t hurt, and apparently Boston’s tech scene is growing quite similar to Silicon Valley’s. The presence of growing companies like Localytics and Invaluable, as well as highly valued pharmaceuticals companies like Intarcia Therapeutics, which landed a gargantuan $200 million Series DD round a few weeks ago, definitely exemplifies Boston’s reputation as a junction of both industries. And indeed, since 2008, IT and healthcare have combined to capture nearly 80% of the city’s VC deals each year. Of those deals, a few notable ones include Kosmos Biotherapeutics’ $319 million Series A in 2010 and Wayfair’s recent $157 million Series B in February.
Do Massachusetts firms favor their major city’s companies as well? You bet. Massachusetts-based investors completed 306 deals with Boston-based companies since 2008. That’s 52% of the 584 total VC rounds in the city since then, showing that VC firms, at least in Seattle and Boston, like to invest locally.
Featured image courtesy of Wikimedia Commons user compdude123.