Venture capital investment activity for the first quarter in the Portland metro reflected the larger national story of investment: Things are slowing.
For the first quarter, investors pumped $94.4 million into the metro area across 22 deals. That is down from the fourth quarter of last year, which saw $140.6 million invested across 34 deals.
The drop is more significant year-over-year. In the first quarter of 2022 there was $415.3 million invested across 44 deals.
The data comes from the latest Venture Monitor report from Seattle research firm Pitchbook and the National Venture Capital Association.
Looking statewide in Oregon, there were 28 deals in the first quarter and a total of $92 million invested. That is also down from Q4 of 2022, when there was $111.7 million invested across 34 deals. Activity for the first quarter of this year is also down compared to the first quarter of last year when $377.5 million was invested across 54 deals.
Across the board, it is harder to raise venture capital right now, regardless where you are, said longtime local investor Diane Fraiman, partner at Voyager Capital. Plus, valuations have been reset.
“I would state they have been reset to more realistic valuations, which is not necessarily a bad thing unless you took money at a very high, and some might say unrealistic valuation, in the last round,” she said. “And, VCs are extremely conscious right now of holding enough — and potentially more than initially modeled — in reserves not knowing how long this investment environment will continue, and wanting to ensure we can support our existing portfolio companies.”
Locally, Fraiman said she started to see the business-to-business software pipeline — the kinds of startups she invests in — start to slow 24 months ago.
“I believe our ecosystem has always been cyclical regardless of the rest of the country, and we are in a cycle right now where there are good ‘top of funnel’ opportunities for the pre-seed folks and it takes time for that to work its way to the level of seed/Series A investments,” she said. Voyager typically invests at the Series A level.
For the first quarter, the top deals in the Portland MSA were mostly below $10 million. The exception was financial services company Charter School Capital, which raised $50 million, according to the report.
The next highest round was Vancouver-based construction project management software maker Digs at $7 million. Not included in the local tally was the $19 million raised by Portland entrepreneur Matt Michaelson for his company Smalls because his business is based in New York.
Fraiman is reiterating her advice for founders heading into 2023: Cash is king. She said her firm is seeing its portfolio companies continue to add new enterprise customers but the sales cycle has lengthened. There is also more focus on renewals and upsells and that large companies are responding to “customer-friendly” terms like discounts for multi-year contracts.
“All this means is that companies need to be extremely conscious of every dollar spent whether that is on people, process or programs — and should be looking at the timeline to profitability to help them determine those priorities today,” she said.
But, it isn’t all caution. Fraiman said she is optimistic for the regional startup economy. More kinds of companies are starting and gaining traction beyond B2B software. There is activity in medical devices, energy, food and beverage and consumer products that have her excited even though that isn’t the focus of Voyager investments.
“These all have very different valuation requirements and different predicted outcomes but lead to a strong long-term ecosystem not reliant on just one market sector,” she said. “Finally, having been in this market a very long time, I am optimistic for new deals presenting themselves as the year goes on.”
