Rhys Jones Photography © Rhys Jones Photography, courtesy of Flickr

Rhys Jones Photography, via Flickr

Startups shutting down. Fire sales. Bankruptcy filings.

The Wall Street Journal today reports on the deteriorating situation in Silicon Valley, with reporters Pui-Wing Tam and Ben Worthen writing that many startup companies are "running out of lifelines" as capital dries up and strategic partnerships fall apart. The story doesn't mention any Seattle startups, but the pain is certainly being felt here too.  And it is likely to get worse.

After all, venture investing in Washington state plunged 82 percent to $76 million in the fourth quarter as VCs essentially closed up shop for the holidays. Based on a preliminary count of venture deals tracked by TechFlash, things aren't looking much better this quarter. So far this year, investors have pumped about $38 million into 10 companies.

What's interesting about those numbers is that many of the deals -- PayScale ($2 million), Mixpo ($4 million), nLight ($10.7 million) and Smartsheet ($1.25 million) -- were inside rounds with capital provided by existing investors.

With the capital well going dry, it could just be a matter of time before companies (or their venture backers) decide to pull the plug. We've seen a few examples locally, including the ultrasonic toothbrush maker Ultreo which shut down recently despite having raised $23 million in venture funding. Public companies such as Northstar Neuroscience and Eden Bioscience also closed down.

And some think this may just be the tip of the iceberg.

"Start-ups are failing faster and you're going to see a major shakeout," Sherwood Partners' Martin Pichinson tells the Journal.  

UPDATE: The climate is getting even bleaker as Silicon Valley venture capital firm Redpoint instructs its portfolio companies to cut up to 10 percent of staff. Redpoint invested in Bellevue's Blue Kai as part of the $10.5 million round announced in December.

[Flickr photo via Rhys Jones Photography]