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Cam Myhrvold

What’s the missing ingredient in Seattle’s startup community?  Is it a lack of smart money? Or a lack of solid entrepreneurs?

Well, for one of Seattle’s top venture capital firms the answer is pretty clear: It’s the entrepreneurs. 

Cam Myhrvold of Ignition Partners delivered some bitter medicine about the Seattle startup community in remarks Wednesday afternoon at the World Financial Symposium growth and exit strategies conference.

In his view, the quality of entrepreneurial talent in Seattle just isn’t up to snuff when compared to the Bay Area.

“…The sort of head-scratching that goes on about entrepreneurship up here, it’s all about the entrepreneurs,” he said. “The Bay Area is not interesting because it is slightly better weather. The Bay Area is interesting because they have a tremendous culture of entrepreneurship.”

Furthermore, Myhrvold added that Seattle “has not been as good of a market as we expected.”

Here are his full remarks, which were prompted by a comment by venture capitalist Tom Huseby that he’d like to see more homegrown money put to work in Seattle:

“Yeah, I think we’d all rather have it in Seattle. I just don’t know how realistic that is. Over the past 10 years, we started our firm on a thesis that Seattle was underserved, and you know, yet the net effect over the past 10 years, I think probably everywhere in the world is, the Bay Area stands taller today than it did in 2000.

We have funded Danish teams. Do we fund them in Copenhagen? No, of course not. They move to San Francisco, they are in South of Mission. We talk to Turkish teams. They came from Ankara. Are they living in Ankara? Of course, not. They live in San Francisco. So, you know, it has been too easy. And the Bay Area has become such a Mecca for entrepreneurship. Things like Y Combinator, and stuff like that just further enhance that.

I think Seattle, frankly, from our own perspective has not been as good of a market as we expected. We are hoping that that will change. But if it changes. It is going to change on the basis of entrepreneurship. Not on the basis of venture capital. I mean, come on. If you are an entrepreneur, do you really deeply care about the zip code of your venture investors? I don’t know why you would.

I think what matters is having great entrepreneurs here. Microsoft has not thrown off lots and lots and lots of great entrepreneurs. Certainly not companies like Intel and Sun and folks like that did in the Valley. Maybe Amazon will, and certainly if you look to cloud computing in the future, between what Microsoft is doing with Azure and the tremendous leadership that Amazon already has, I think that we are looking at happier times.

But, the sort of head-scratching that goes on about entrepreneurship up here, it’s all about the entrepreneurs. The Bay Area is not interesting because it is slightly better weather. The Bay Area is interesting because they have a tremendous culture of entrepreneurship. There is not anyone in the tech industry who hasn’t been in a startup, or have a friend or relative that has been in a startup. And that just isn’t true up here. There are just a huge number of insanely talented people down there. There is up here too. But when it comes to entrepreneurship — versus engineering — the Bay Area has a real edge. And that’s what I’d like to see reversed. Or improved upon. Until that happens, I think the availability of more money sources is orthogonal  to the problem.”

Cam Myhrvold of Ignition, Tom Huseby of SeaPoint and Len Jordan of Madrona.

That might be a tough pill for some in Seattle to swallow, especially since the words come from the partner at one of the region’s largest VC firms. (Ignition itself is going through its own reorganization, with word out earlier this month that it is scaling back operations as it targets a new $150 million to $200 million fund). But it shouldn’t be that much of a surprise, since Ignition has been making a ton of investments in California over the past two years, essentially letting its pocketbook do the talking.

Myhrvold is correct in saying that Microsoft hasn’t spun off a ton of entrepreneurial talent in the region, and he’s probably on the right path about Amazon too. I also wouldn’t dispute the notion that Silicon Valley is the Mecca of startups now, and probably always will be.

But the real question, which is open to debate, is whether there are enough high-quality entrepreneurs hanging around Seattle to make it worthwhile for a VC to invest time and money here?

Myhrvold doesn’t think so, obviously.

But others don’t quite buy that line.  Madrona Venture Group’s Len Jordan countered with a more upbeat message, touting a new crop of entrepreneurs and a strengthening angel scene in the region. He also pointed out continued interest among Bay Area firms in the region’s startup companies — highlighted by some big rounds that were completed last year.

“We are seeing a lot of strong companies in Seattle. We are homers,” said Jordan, adding that about 80 percent of the firm’s investments are based in the Northwest.

Madrona was able to raise a $300 million venture fund last year — the largest in its history — on a business model that primarily centers around investing in early-stage startups in the Pacific Northwest. All of that said, echoing some of Myhrvold’s thoughts, Jordan doesn’t think money is an issue in Seattle. It’s more about Seattle being a younger tech market.

Len Jordan

“The cycle that created Silicon Valley isn’t something that happened over 10 years. It happened over 70 or 80 years,” he said.

Longtime Seattle venture capitalist Tom Huseby also said he was bullish on the region, pointing to the success of Seattle’s nFluence Media raising $4.6 million, largely from local angels.

“I was really encouraged by that,” he said. “I am very hopeful that there is a whole layer of funding that is beginning to develop here in town and there are really good mechanisms to access that right now that are being institutionalized.”

But the veteran VC also said he was “discouraged” — largely because of what he sees as a lack of mid-stage funding in Seattle, the kind of money that historically could have been provided by a firm of Ignition’s size.

“I don’t think we have enough people in the market. If you go to the relatively few funds that are active here, and you get turned down, you may be getting turned down just because they are too busy on something else. And we need more people here to appeal to the middle stages, not fewer,” he said. “There is nothing wrong with going down to the Bay Area, but I’d rather have it be all in Seattle, personally.”

Tom Huseby

There is certainly no question that the Bay Area is a much bigger and more mature startup ecosystem — with California accounting for about half of all venture capital dollars in the U.S. There’s simply more of everything in Silicon Valley.

All of that said, there’s certainly a crop of important and interesting entrepreneurial companies emerging in the Northwest, even if some are flying under the radar or raising money from Bay Area firms. And people have made some good money in the past five years through companies like Zillow, PopCap, DoubleDown, Swype, SnapIn and Isilon, though the total number of big exits does need to go up significantly for anything to really change.

In order for an ecosystem to thrive, whether a smaller one like Seattle or a large one like Silicon Valley, there needs to be the right balance between capital and entrepreneurs. The two sides of the equation — money and entrepreneurs — need to be working in harmony. With OVP Venture Partners and Frazier Technology Ventures winding down operations, and bigger firms like Ignition and Polaris Venture Partners scaling back and investing elsewhere, it does appear that the capital piece of the equation is getting out of whack, at least when it comes to local money.

Maybe Seattle’s crop of entrepreneurial talent is really only deep enough to support one or two home-grown venture firms. Or maybe new investors — which we are starting to in the form of angels like Rudy Gadre; new venture firms like Naya Ventures and accelerators like 9Mile Labs — will emerge on the scene to take advantage of opportunity.

The only certain thing is that things are going to change. It has to.

Previous coverage from the World Financial Symposium eventThe wisdom of Tom Huseby: Advice and zingers from Seattle’s most quotable VCSeattle angels on what they look for in entrepreneurs, and why startups fail

Previous discussion on GeekWireWhy this entrepreneur is moving to Vegas, and what it means for the Seattle scene

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