March 10, 2000

NW's hot tech companies still lag in attracting venture capital

Although the amount of venture capital pouring into Northwest companies has increased in the last 10 years, the region still lags behind the Northeast and especially Silicon Valley in venture investments, according to a report released Thursday.

In the third quarter of 1999, Silicon Valley captured nearly $3.25 billion in venture capital, 10 times the amount Northwest companies received, the Washington Technology Center report said.

"The data emphasizes the need to support small technology companies, since they have been the engine for growth and diversification in Washington's high-tech industries," said Lee Cheatham, executive director of the Technology Center and co-author of the report.

Software companies, as well as communications, health care and biotechnology receive the majority of venture investment for the region, the report said. But the Northwest ranks 10th out of 18 regions nationally in receiving venture capital investments last year.

The report says that Washington has the highest rate of business start-ups in the country and the fifth highest job growth rate among start-up companies.

But the report also claims that while Washington has the nation's highest rate of start-ups (per 1,000 workers), it also has the highest rate -- 20 percent -- of business closings each year. The median is 12 percent.

Technology industries, which include Boeing, make up 11.4 percent of total employment in the state. Aircraft and computer and data processing services comprise nearly 60 percent of all tech jobs in the state.

"Growth of the technology sector can help shield Washington's economy from the ups and downs of general economic cycles," Cheatham wrote. "Some technology sectors, especially information and biotechnology sectors, respond differently to such economic changes than do Washington's major industries -- aircraft, agriculture and forest products."

Washington's young and growing companies are engines of growth and provide stability for the state's economy, Cheatham said in the report. Yet he added that, with 61 percent of the state's tech jobs in King County, "the rest of the state has much less opportunity to participate in the technology economy."

The report is the first of its kind for the state and provides comparative data from more than 30 sources. It is available online at http://www.watechcenter.org. The Technology Center is a state-funded agency whose mission is to encourage economic growth by linking state university researchers with private companies.

While the report says the state has a high employee growth rate among start-ups, it also concludes that Washington tech companies are facing a worker shortage and the state's higher education institutions cannot expand rapidly enough to meet the employment demands of those firms. In addition, the Seattle area, where a majority of tech jobs in the state are located, ranks low nationally for housing affordability and traffic congestion.

In the area of innovation, the report says the state's number of technology patents increased 166 percent between 1994 and '98. Microsoft and Boeing have produced the highest number of patents, with Hewlett-Packard and the University of Washington in second and third during the same time period.

"The number of patents generated by Washington's companies, universities and laboratories is a good indication of how active the new idea creation process is," the report says. "These new ideas are the basis for future products and companies."