Seattle venture capitalists are spreading their wings. And while that may prove to be a smart financial decision for the individual firms, it also may be bad news for the Northwest entrepreneurial community. Consider this: Nearly all of the major Seattle venture capital firms have placed at least one new bet on a technology company located in another state in the past six months.
The latest example is Ignition Partners, which today led a $6 million investment in San Francisco photography startup DailyBooth.
And this isn’t the first time that Ignition — a Bellevue-based firm led by former Microsoft and McCaw Cellular vets — has looked outside Seattle for deals. In the past three weeks, Ignition has made two other investments in San Francisco Bay Area companies: Hipmunk and SocialEyes.
Ignition is not alone.
Madrona Venture Group earlier this month backed MaxPoint Interactive, an online advertising company located in Cary, North Carolina. Meanwhile, Maveron last month made a high-profile investment in Chicago-based Groupon. OVP Venture Partners also has made a number of investments over the past 18 months in startup companies located in other states.
Is this a crisis? Probably not.
But it is a trend certainly worth noting, one that was mentioned in passing by a corporate attorney I was chatting with the other day.
The concern is that VCs — chasing hot deals in other locations of the country — miss out on bankrolling the next-generation of entrepreneurial stars in Seattle.
The recent activity must be especially painful for those Seattle entrepreneurs — and I know there are many of them — who’ve been passed over by Seattle VCs.
Venture capital dollars are precious. Losing even one buck to another state could mean missing out on the opportunity of finding the next Groupon, Twitter or Zynga.
Of course, the venture capitalists are seeking those type of big payoffs, and that’s one of the reasons why they are willing to jump on a plane to find them.
In fact, as I’ve noted before, some of the best financial outcomes for Seattle VCs last year involved companies headquartered outside the region. Adding salt to the wound, the pipeline for IPO candidates out of Seattle is pretty weak right now.
VCs will tell you that they’d prefer to do all of their deals within a 50 mile radius. That’s probably true.
But duty often calls, and hot deals now can be sourced nearly anywhere. (Perhaps the rise of advanced communications technologies is playing a part in the connections that VCs can have with entrepreneurs, no matter where they are located.)
It is not uncommon for venture capitalists to look elsewhere for deals, but the pace seems to have accelerated.
This isn’t to say that Seattle VCs are completely ignoring their backyard. After all, in the past few months, Madrona invested in Cheezburger; OVP backed Datasphere and Ignition bankrolled Korrio. The support of the VC community of TechStars, the startup incubator program which hatched its first batch of startups last fall, was truly unprecedented.
Nonetheless, the trend of Seattle firms doing deals in San Fran and Boston should be enough to snap the startup community to attention.
And it begs the question: Are VCs missing good deals around here? Or, are we simply lacking high-quality entrepreneurial ventures?
I am sure the answer to those questions will vary widely depending upon who you ask.
UPDATE: Maybe the VCs were listening. On Wednesday, Ignition Partners and Madrona Venture Group announced an $8.5 million investment in Seattle-base Tier 3. See our story here.
John Cook is co-founder of GeekWire, a technology news site in Seattle. Follow on Twitter @geekwirenews.
