Following the early COVID years that infused surplus capital into the markets, prompting mid to late-stage investors to deploy capital into most any and all deals, venture capitalists are now being diligent and patient with prospective investments, says Skye Henderson, vice president of venture investments of Spokane-based Cowles Ventures. 

“There was certainly some fear of missing out among early-stage investors to get into deals that perhaps wouldn’t have been funded in a normal economy, or at least not at the valuations they were receiving,” says Henderson. “Valuations declined drastically in 2023 from 2020 to 2022, but in perspective, back to normalized levels.” 

Tom Simpson, president of the Spokane Angel Alliance, says venture capitalist investors were in a state of triage after the excessive investments made in 2021 into many unworthy or unproven companies. The market has since been correcting, he says. 

“2021 was often characterized as a period of 'drive-by' investing,” says Simpson. “Markets were hot, and it was the wild, wild West with little due diligence.”

While the last couple of years were marked by an unsettled investing environment, Henderson, who is also a board member of Spokane-based startup accelerator Ignite Northwest, says the startup ecosystem is off to a strong start this year. 

“2024 is starting off as one of the most exciting years I have seen in the Spokane startup space,” says Henderson. “The collaboration between organizations in the startup ecosystem is growing. It truly feels like a rising tide.” 

According to proprietary market data software subscription platform PitchBook, in the first month of  2024, about $20 million has been raised by Inland Northwest startups. That's just over a quarter of the amount raised in all of 2023, when Inland Northwest startups secured a total of $75 million in investment, according to PitchBook.

Last year's volume of activity followed wild swings during the pandemic. Capital raised in the Inland Northwest peaked at just over $200 million in 2022. In 2021, capital raised surpassed $100 million, up from $80 million in 2020 and about $65 million in 2019.  

While the total capital raised by Inland Northwest startups in the last four years has fluctuated, the number of deals stayed relatively even. According to PitchBook data, there were about 18 deals made in 2020, about 23 deals in 2021, about 22 in 2022, and 25 deals made in 2023. Pre-pandemic, the number of deals made in 2019 was 26. 

Industrywide, 2023 was a difficult year for seed-stage founders trying to raise series A funding when compared with 2022, reports San Francisco-based equity management platform Carta Inc.  In 2023, a total of $11 billion was invested into primary series A rounds, down from $25 billion the year prior. 

Henderson says Spokane does have some trends in line with the wider market, specifically taken from the perspective of the interest rate environment that went from a low of between a quarter of a percentage point and a half-percent in 2022, to between 5.25 % and 5.5% last year. Investors typically seek attractive returns on their investments, and when interest rates rise, investors shift their preference to more secure options, resulting in less funds available to invest in startups. 

“Everyone slowed down, became patient, and ensured their current active portfolio companies were funded with internal rounds in 2023, if they couldn’t raise new capital from investors outside the capital table,” he says. 

Simpson, however, says he takes industrywide reports with a grain of salt and prefers to heed the advice from Warren Buffet, who has said, "Be fearful when others are greedy and be greedy when others are fearful."

“All that, to me, is noise,” Simpson says of the reports. “The landscape into investing into startups is always changing, based on market conditions, technology trends, macroeconomic factors, and geographic diversification/concentration—which has benefited Spokane.”

While investments slowed down in 2023 compared to the year before, there have been some wins by local startups. For example, in September, the fintech startup Treasury4 Inc. received $20 million in series A funding, one of the largest sums secured by a Spokane-area startup last year, and rivaling those of other successful Spokane startups over the years.

“I expect to see a continued uptick in the number of regional startups/emerging companies funded and the amount of total invested in 2024,” says Simpson. 

Simpson says he currently is monitoring and evaluating more than 10 investment opportunities, a historical high that is not only being fueled by improving market conditions but also the continued inbound migration of talent into Spokane. 

“The pandemic has been good to Spokane from a tech perspective,” he says. “Companies have embraced remote work, and people fleeing companies like Google and Facebook have found themselves here.” 

Simpson credits the increased number of local programs catering to the needs of entrepreneurs, startups, and emerging companies. In addition to the organization he operates, Ignite Northwest, other organizations that have been formed over the years include LaunchPad Inland Northwest LLC, StartUp Spokane, Washington State University Spokane’s business incubator SP3NW, and Founders Live Spokane. All of those organizations collaborate while targeting different types of entrepreneurs, says Simpson. 

Mark Pond is the business research librarian for the Spokane Public Library and manages StartUp Spokane. Pond is often the first point of contact for many entrepreneurs ranging from Main Street-type of businesses such as auto repair shops, restaurants, and food trucks, to the more scalable type of startups that venture capitalists are in search of, he says. 

Pond says that he on occasion will come across what he calls the popular image of startups, such as high-tech and manufacturing companies that can scale exponentially. When he does, he makes sure to make the library's resources available to them but also refers them and their ideas to organizations that can help them grow, such as SP3NW and the Spokane Angel Alliance. 

"In my world, if you're opening up a business whether it's scalable or not, I refer to you as a startup," he says. "They are also deserving of the name startup. They've got dreams and aspirations and hopes for their business."