Early-stage funding for startups in the Pacific Northwest, including those in the Inland Northwest, is expected to improve this year following a stubborn downturn in funding activity in 2023 and 2024, according to venture capital investment experts featured at recent State of the Market panel discussion in Spokane.

More than 60 people, including venture capital investors, entrepreneurs, and providers of professional services in finance, accounting, and business law, attended the Jan. 30 event at Barrister Winery, sponsored by Ignite Northwest, Moss Adams LLP, Voyager Capital LLC, Cascadia Capital LLC, and Silicon Valley Bank.

Panelist Bill McAleer, a partner at Seattle-based venture capital company Voyager Capital, says 2024 was one of the worst years in the last 15 years in terms of the number of deals funded.

The year ended with a spark of optimism, however. McAleer says, “The fourth quarter did see a big pickup in venture activity. There was actually some reasonably good activity in early-stage funding and seed rounds—not so much in Series B funding.”

Seed funding is used to start a business, while Series B funding typically is used to scale it to market.

And McAleer says there is more good news: “There is a lot of capital on the sidelines.”

Voyager Capital invests in startups that produce products and services employing artificial intelligence technology, software-driven hardware, sustainable agriculture, and supply-chain solutions throughout the Pacific Northwest and western Canada. McAleer says the company is getting ready to write checks this year in exchange for equity in startups.

“I think we're going to see more activity on the venture side, but it's still going to be reasonable valuations,” he says. “For your early-stage companies out trying to raise money, there's probably seed capital floating around.”

He notes that he recently attended a meeting of the Seattle-based Alliance of Angels, in which angel investors said they also were ready to write some checks to fund early-stage companies.

“So there is money there, and I think we'll see more,” he says.

Panel moderator Tom Simpson, CEO of Spokane-based business accelerator Ignite Northwest and president of investor group Spokane Angel Alliance, share’s McAleer’s optimism.

“I have participated through my angel investment funds in four Series A financings that have closed since December for companies in this region that aggregate $40 million, all led by credible institutional investors,” Simpson says. “Over the years I’ve been doing this, I don’t know if I’ve ever seen that in one 30-ish-day period.”

Simpson declines to name the companies and says he defers to them to announce the financing.

Series A funding—a round that occurs after the seed-funding round and precedes the Series B funding round—typically is used to optimize a startup’s product or service and define its market.

While Simpson says he doesn’t expect that volume of activity every month, he adds, “If I look at that one data point, things look good for 2025.”

McAleer says about 60% of VC investments in the last year were for companies working in AI technology.

“Companies that were not AI were the ones that had a little bit tougher time trying to raise capital,” he says. “If you're not an AI company, you really have to show differentiation—some specific impact on the business process. If you are an AI company, you still have to tell a good story.”

Panelist Natalie Steck, Seattle-based managing director at Silicon Valley Bank , says that, while overall VC investing was down last year, the ratio of companies receiving seed funding rose compared with the number of companies receiving Series A funding.

The typical seed-to-Series A funding ratio in Washington state is below 3 to 1, she says.

“We saw that jump in 2024 to 5 to 1—more seed deals, fewer Series A deals,” she says. “We're still lending to those really early-stage companies—preproduct, prerevenue.”

Steck says Silicon Valley Bank analysts are forecasting that 1,450 Series A tech deals will be completed this year across the U.S. While that would represent 6% growth compared with 2024, activity levels likely still will be lower than they were a decade ago, she adds.

Silicon Valley Bank, known for its tech startup financing, is now a division of California-based First Citizens BancShares, after its original bankholding company collapsed in March 2023. 

Panelist Kevin Cable, Spokane-based co-founder of venture capital investment company Cascadia Capital LLC, likened the VC scenario in the last couple of years to a hangover following two years of pandemic-era VC investment “heavy partying” in 2021 and 2022, when “it was just buckets of money in the street."

Since then, those investors have been paying for the sins of their ways, he says.

“They overpaid for businesses,” he says. “They bought businesses that were poorly dilligenced.”

Investors pulled back in 2023 to sweat out the hangover, Cable says, but the risk-averse atmosphere continued deep into 2024.

“This has been a longer down cycle than any of us expected,” he says. “We all expected in ‘deal land’ that it was going to clear up in 12 to 16 months.”

Instead, it lasted a full two years.

“From a deal perspective, 2024 was even worse than 2023,” Cable says. “So we didn't shake this thing very well.”

However, he too says that there was a resurgence in deals in the venture market across the country in the fourth quarter of 2024.

“We also saw a resurgence in confidence and commitment from private equity holders of portfolio companies,” he says of some of the larger venture capital investment firms.

“They all have new deals that are standing on the sidelines,” he says. “These deals are starting to trickle out now.”

Cable adds that Cascadia Capital’s pitch activity has quadrupled in the last 60 days.

He cautions, however, that a potential downside will be that investors will be overwhelmed by the number of deals coming to the market.

“It’s going to be pretty scary,” he says.

Regarding early-stage funding activity, Steck agreed there are a lot of cash reserves in the VC investor market.

She says the headwinds and tailwinds for VC investing are impacted by interest rates.

“A lot of market analysts are tracking what they believe will be a Fed fund rate of just below 4% by the end of the year,” she says. “So that’s good news for the industry, but that doesn’t mean that we’re getting back to that market peak.”

Spokane has good potential to share in the anticipated resurgence in VC investment, the panelists say.

Steck says, “I think we're seeing a lot of innovation in ag tech and climate tech and even health and life sciences. And I think there is a real unique skillset in Spokane.”

McAleer notes, “Spokane has one of the highest densities of college students and medical facilities.”

He says another fundamental advantage Spokane has over Seattle that could attract VC investment is a comparatively favorable cost of labor.