Adeo Ressi was in town this week, battling a nasty case of pink eye and a broken toe. But those ailments aren’t slowing down the creator of The Founder Institute, a high-tech incubator which is attempting to help nurture as many as 600 new companies this year, including as many as 50 in Seattle. GeekWire chatted with the Silicon Valley entrepreneur — who was in town to attract recruits for his next class – to get his thoughts on the state of the startup market, whether there’s a bubble forming in tech and what he thinks needs to happen for Seattle to emerge as a truly great innovation center.
In his view, Seattle is kind of stuck at the moment with an inadequate mix of both angel investors and venture capitalists. The most important thing that needs to happen to break that logjam is for wealthy Seattle techies to get off the sidelines and start making some deals.
“The one thing that is clear is that the funding environment is pretty poor,” said Ressi. “(There’s) a rather anemic group of venture capitalists, and a rather anemic group of angels. And so, if you ask why is that? It seems that you have a lot of entrepreneurs and executives at tech firms that have money, but for some reason they are not being enticed off the sidelines.”
For a technology market to thrive, Ressi says that there needs to be a strong symbiosis between the angel and VC community. At the moment, that doesn’t exist here. There’s plenty of potential, with Ressi noting that Seattle likely has as many rich techies as Silicon Valley. “There are a lot of rich people here,” he says. “So, there’s no reason why there shouldn’t be more angel investing.”
“The naysayers in the room tend to dull the momentum of a deal, and if one guy is really negative it can kill the entire group’s interest,” said Ressi. He compares that to AngelList, an online matchmaking service of sorts which he says is a completely positive reinforcing cycle.
“You can’t say you don’t like the (deal),” he says. It is that sort of positive momentum which the region needs more of, which doesn’t always work in an environment known for the “Seattle Freeze.”
Nonetheless, Ressi sees opportunity in Seattle. And that’s one of the reasons why he and Dave Parker — who leads the Seattle program — are spending time helping to cultivate a new class of entrepreneurs.
“You have the talent,” he says.
But, for whatever reason, the community hasn’t produced a blockbuster consumer Internet company in at least five years.
Asked whether there’s a new bubble forming in the tech industry, Ressi pointedly notes: “Well, it is not happening in Seattle, that’s for sure.”
That kind of hurts, but it does speak directly to one of the challenges that faces the tech community here and it is one I’ve touched on frequently in the past. Where is Seattle’s version of Facebook or Twitter or Zynga or LinkedIn?
Globally speaking, Ressi – who sold the startup Game Trust to RealNetworks in 2007 — doesn’t think there’s a bubble forming like what occurred in the late 90s. That’s because the amount of capital going into startup companies is about the same as it was two or three years ago.
“I would be concerned about it being a bubble if the total amount of money going into startups had doubled, but that’s not happening,” he says. What’s occurring — which Ressi says is “really kind of weird” — is a class of companies at the top of the heap getting massive amounts of venture capital.
Instead of making five $10 million bets, Ressi says some VCs are opting to make one $50 million bet. “There’s a higher degree of concentration at the top, so the landscape has shifted dramatically,” he says.
Unfortunately, Ressi worries that this new environment could create a wasteland of companies in the mid-tier.
Programs like The Founder Institute, TechStars and 500 Startups — which he says are designed to make the company creation process easier — may help fill that void. [See also: Two Days in Silicon Valley: An inside look at 23 startups from Dave McClure's Demo Days]
Over the past 21 months, The Founder Institute has helped launch 300 companies. To date, more than 90 percent of those are still alive.
So, what’s it going to take to get those angel investors backing more startups in Seattle?
Ressi — whose program attracts mentors such as Z2Live’s David Bluhm, Big Door’s Matt Shobe and LiveMocha’s Michael Schutzler – said it will take some coaxing. And he’s looking to spark that process with the new class of companies, which enter the program April 18th.
Ressi is still working out the details, but he plans to give a single digit percentage share in the entire pool of Founder Institute’s Seattle companies to any angel investor who bankrolls a graduate of the program. In other words, if an angel steps up to invest in a single company over a certain threshold, they will get a small slice of equity in all of the graduates of the program.
“The idea is to pull people off the sidelines,” said Ressi. “I think there are a lot of people sitting on the sidelines in Seattle, and they need pulled off.”