The sun has set in Seattle for Polaris Venture Partners (Kurt Schlosser photo)

When Polaris Venture Partners arrived in Seattle 15 years ago, the Boston-based firm thought the market had plenty of promise. But general partner Jon Flint tells VentureWire that the Seattle market “never developed,” and as a result the firm has closed its Seattle office. General Partner Brian Chee has relocated to the firm’s San Francisco office, a place that Flint says is “a much more fertile place for us to fish.”

Ouch.

That’s hardly the message that Seattle’s venture capital and entrepreneurial community wants to hear. But it does play into a larger theme I’ve discussed in recent weeks.

Seattle — for all its strengths with anchor tenants like Amazon.com, Microsoft, Expedia and The University of Washington — has failed to produce a blockbuster next-generation technology company on the scale of LinkedIn, Facebook or Salesforce.com. (The sale of Seattle-based Isilon to EMC for $2.25 billion, considered one of the largest purchases of a storage company, was a good start but not enough to put the region on the map).

Polaris has been relatively quiet on the venture capital scene for a number of years in terms of new investments, so the closure of the office is not a huge surprise.

However, the firm has had some success in the market with existing portfolio companies. Impinj, the Seattle developer of RFID technologies, just filed to go public last month. And smoking cessation startup Free & Clear sold to Inverness Medical Solutions for $130 million in 2009, an acquisition that was honored by Washington state’s Evergreen Venture Capital Association as the top deal of the year.

Polaris, along with Arch Venture Partners, was one of the first venture capital firms to set up shop in Seattle. The local office was led for more than a decade by Polaris co-founder Steve Arnold, a former Microsoft and Corbis executive who switched to a part-time role at the firm a few years ago. (We have emails into both Arnold and Chee, and we’ll update the post when we hear more).

The departure of Polaris follows several other VC firms from outside the region that decided to pull the plug in Seattle, including Mohr Davidow Ventures and Atlas Venture. Those firms pulled out after of  Seattle in 2003 following the dot-com bust.

Other companies in the Polaris portfolio in Seattle include Noetix, Cardiac Dimensions and Botanical Laboratories.

[Hat tip to Xconomy]

Comments

  • Anonymous

    An interesting analysis would be to see how Polaris’ Seattle investments compared with the other companies who left — and then compare them to the companies that stayed.

    In other words, are they leaving because of a dearth of opportunity, or have they done what most VCs have done — make poor investments and lose money?

    • Paul

      Probably a bit of both, but Polaris has not been a huge Seattle investor.  Overall Calpers only shows data for one Polaris fund, a 2002 fund with a 2.7% IRR and a 1.1x multiple of money for a pretty mature fund. That return isn’t very good when you look at private equity as a whole, but looks to be roughly comparable to many of the other VC funds on the list and in-line with the generally horrible performance of the VC asset class over the past decade. 

      If you look at Dan Primack’s term sheet blog on Fortune, it recaps their recent fundraising. Polaris went from a $1 billion fund in 2006 to a $375 million fund this year.  A decrease in fund size from 2006 to 2011 for VC investors is pretty common, particularly for investors like Polaris that tried to add more of a growth equity component that takes more capital.  However, that is a big drop and Polaris apparently started out looking for $500 million then cut to $400 million but settled for $375 million so they came up short of target. 

      They also had some churn in their partner ranks, which is not surprising with a cut in fund size that raised less than target, and mediocre performance. This current fund probably defines where Polaris will survive long-term or fail.

  • Paul

    Interesting, but not surprising and probably overdue. Steve Arnold stopped making new investments many years ago and was Polaris’ only IT investor in Seattle. Brian Chee has always focused on life sciences/healthcare, particularly in medical devices, and there just is not enough volume in this market for him to invest here exclusively or even predominantly. He is a nice enough guy to deal with but the Bay Area or San Diego seem like a better fit for him from a West Coast investing perspective.

    I haven’t seen them do much recently but Polaris’ reputation has been that they are one of the most difficult firms to work with from an evaluation and terms perspective. In a world where ease of dealing with an investor is increasingly important and early stage deals dominate, I doubt they were seeing the best deal flow generally. You would find a fair number of horror stories from dealing with them if entrepreneurs were being candid. 

  • Emeraldeacon

    Another interesting analysis would be to see how much innovation and incubation is occurring in Seattle with non VC support.  Wonder if VC leaves Seattle for lack of cookie cutter VC opportunity, or if VC model in general is dated and innovation is taking place and incubating without the need for traditional VC money in Seattle

  • http://www.nosnivelling.com daveschappell

    I wouldn’t read much into this — I know Polaris (through their investments in JibJab, which Jon Flint lead), and they’ve been fantastic with JibJab.  But, I never really thought of them as being active AT ALL in Seattle.  It seemed like more of an accommodation for Steve, who lives on Bainbridge, I think (sweet boat commute to work for him!).

    As far as I know, they haven’t even sniffed at a tech investment in the last 4-5 years, and they never come up in the discussion in the startup community.

    In fact, when I was raising money for TeachStreet, I had my only ‘real’ discussion with them in Palo Alto, when I was able to cross paths with Mike Hirschland.

    Nothing to see here… 

  • Steve Gilbert

    The Seattle market is a very different market from SF – agree 100%. Their business model and requirements may just not mesh with what we have to offer here. That is not necessarily a bad thing.

    I do think there is something for us to consider here – with all of our creativity, capital, expertise and history of game-changing industry leaders, what would it take to propel us the next evolution of the game?

    I see companies like Novel ( Brayden Olson just won the 2011 Eastside Young Entrepreneur award) taking enterprise simulation to a new level, as an example of how we approach business.

    Facebook, twitter, linkedIn and eBay have all been game changers with meteoric growth but I already notice enthusiasm waning for these services (personal observation not fact based on hard data). I believe we have the opportunity and resources to play a significant role in the next generation of business.

  • Steve Gilbert

    The Seattle market is a very different market from SF – agree 100%. Their business model and requirements may just not mesh with what we have to offer here. That is not necessarily a bad thing.

    I do think there is something for us to consider here – with all of our creativity, capital, expertise and history of game-changing industry leaders, what would it take to propel us the next evolution of the game?

    I see companies like Novel ( Brayden Olson just won the 2011 Eastside Young Entrepreneur award) taking enterprise simulation to a new level, as an example of how we approach business.

    Facebook, twitter, linkedIn and eBay have all been game changers with meteoric growth but I already notice enthusiasm waning for these services (personal observation not fact based on hard data). I believe we have the opportunity and resources to play a significant role in the next generation of business.

  • http://www.birthdayslam.com Jeff Robinson

    It took 15 years to figure that out?

  • http://twitter.com/ppmnet PPMNET

    Its too bad, we new some that worked in our seattle office.
    Paul Azous
    http://www.ppm.net

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