Venture Capital: It's a dead sea for some, but Voyager sets sail
By JOHN COOK
SEATTLE POST-INTELLIGENCER REPORTER
Friday, February 7, 2003
With nearly half of its $215 million venture fund remaining, Voyager Capital is starting to invest again.
The money just isn't flowing in the Pacific Northwest.
In the past six months, the Seattle firm has pumped $11.5 million into three Silicon Valley start-ups. Furthermore, its five most recent deals have been made in Northern California companies.
Voyager, which opened a Silicon Valley office in early 2000, has not invested in a Seattle-area company in 28 months.
That's a long dry spell.
But it doesn't mean that the 6-year-old company is backing away from the Pacific Northwest.
"Absolutely not," said Enrique Godreau, one of the firm's four managing directors.
"We are very, very focused," Godreau said. "Our commitment is to have two-thirds of our investments in the Pacific Northwest and one-third in other areas such as the Bay Area and Austin, Texas."
If the activity level at the firm's downtown Seattle office yesterday morning was any indication, Voyager will be here for a long time. At least three groups of entrepreneurs were pitching business plans at the firm's 14th-floor office, so many that staff members struggled to organize conference rooms for everyone.
"I hear that they are open for business and they are looking for deals," said Linqware Chief Executive Tod Turner, who was referred to Voyager by another local VC firm.
In the past two weeks, Godreau and his Seattle partners have met with a dozen entrepreneurial teams from the Pacific Northwest. Vancouver, B.C., is an especially interesting market for the firm. Godreau spends a couple of days a month in Portland.
So why the outflow of capital to Northern California?
Voyager's Bill McAleer said deal flow was stronger in Silicon Valley in 2001 and 2002, partly because of that region's more diversified technology base.
"All of these markets hit lows during that period. But Seattle probably hit a little deeper one," he said.
Seattle's heavy reliance on Internet technologies in the late '90s hurt the region more than others, he added.
Venture capital investments fell sharply in the state last year with investment activity plunging to 1997 levels. About $599 million was invested, a 40 percent decline over the previous year.
But McAleer believes the pendulum has started to swing the other way.
"Over the last two quarters we have been seeing improved deal flow here in Seattle," said McAleer, a former executive at Aldus and Westin Hotels. "We've seen some folks coming up from California and experienced entrepreneurs starting companies. If you look at this region, the big gorillas have stayed pretty stable."
Amazon.com, AT&T Wireless, T-Mobile and Microsoft are all doing reasonably well, he said. And that could stabilize the high-tech industry and make it grow.
Asked to rank the strength of three regions in which the firm invests, McAleer placed Silicon Valley at the top, followed by Seattle and then Austin.
Curtis Feeny, who manages Voyager's office on the famed Sand Hill Road in Menlo Park, Calif., is in the unusual position of analyzing both the Seattle and Silicon Valley markets.
A former vice president at Stanford University's endowment fund, Feeny has led Voyager's recent investments in San Mateo, Calif.-based FHP Wireless and Palo Alto, Calif.-based SeeCommerce.
"It is a deeper market here," Feeny said. "Voyager has a good and growing reputation in the Valley so we are seeing better and better deals."
That is part of the reason the firm has increased its investment activity in California. With greater exposure to high-quality deals, Feeny has attempted to capitalize on the opportunity. Investing in Silicon Valley also strengthened the firm's network and its goal of cross-pollinating technologies between the two regions.
Because Voyager invested somewhat cautiously during the Internet bubble years and made triage decisions early, the firm is in the advantageous position of sitting on a decent amount of capital, Feeny said.
"As others slow down, we have been able to put as much money out as in the boom times," he said.
Since raising the $215 million fund in May 2000, Voyager has invested in 12 companies. It plans to target another 10, with two to three deals in the Pacific Northwest this year.
The firm's biggest successes include Avenue A, which went public in Feb. 2000, and Tegic Communications, which was sold to AOL Time Warner in 1999. Failed investments include Agital, ClaimsDesk and DailyShopper.
Even though venture capital continues to slip and the IPO market remains shut, McAleer believes now is the time to push forward.
"We think valuations are good, the cost of building a company is pretty reasonable and talent is much more accessible than it was before," he said. "And if you look back at the history of venture capital, a lot of the successful companies were funded in down times."
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