At the Technology Alliance annual luncheon this week in downtown Seattle, industry leaders lamented the sad state of the educational system. Zillow co-founder Rich Barton and Apex Learning CEO Cheryl Vedoe spoke in detail about how Washington state isn’t doing a good job of educating our own students, relying on “imported” talent to fuel the innovation economy.
“Don’t we want those children who grow up here in Washington, our own citizens, to have a fair shot at the jobs that we are creating here?” asked Vedoe.
If you think about startups as school-aged children, the same thing can be said about money.
Washington state startups are a huge importer of capital, in part because they have relatively few options in their backyards. And while this importation of capital may not get as much attention as the failing educational system, it’s a serious problem that has wide-ranging impact on the region and the startup community. And just like education, there’s not a lot being done about it.
I’ve written in the past about my concerns regarding Seattle’s dwindling venture capital community — including the disappearance of firms such as OVP Venture Partners and Frazier Technology Ventures.
When Polaris Venture Partners left town two years ago this month, a partner at the firm said they wanted to seek “a much more fertile place … to fish.” That stung, as did remarks earlier this year when Seattle venture capitalist Cam Myhrvold indicated that the entrepreneurs here weren’t up to snuff when compared to the Valley.
Money wasn’t the problem, he hypothesized, though that statement certainly is open to debate. Are the entrepreneurs really that much better in NYC or Silicon Valley? (Madrona Venture Group, which raised $300 million last year, the largest fund in its history, certainly believes there are good opportunities lurking in the NW).
The reason this topic popped into my mind today is that SoftBank, the venture capital arm of the big Japanese cell phone carrier, just announced a plan to invest $50 million in early-stage startups in … New York City. It’s a great boost for the Big Apple, adding more fuel to a startup ecosystem that’s already firing under the leadership of an entrepreneurial Mayor and a super-charged VC community.
Now, as I’ved noted before, I don’t think New York’s tech industry is any stronger than Seattle’s. In fact, I’m hard-pressed to name a NYC-based tech giant on the scale of Amazon.com, Expedia or Microsoft.
But here’s the deal. New York may not have those types of companies now, but they are trying pretty gosh-darned hard to build the next one, and those efforts come, in part, through home-grown capital.
Groundbreaking ideas and sharp entrepreneurs matter, but so does money. And the money has not been flowing in Seattle — at least not from VC firms headquartered here.
For the first time since 1993, Oregon companies raised more venture capital than Washington companies during the first quarter. New York’s haul of $715 million, meanwhile, was more than seven times greater what was raised in Washington state.
New York-based VC firm Union Square Ventures made big money when Tumblr sold to Yahoo for $1.1 billion, and Spark, which just opened an office in New York to track new deals, fared pretty well too, both posting a 15-fold return. Together, Bloomberg News notes that those two firms alone have seven portfolio companies in New York.
Seattle certainly has banked some succeses in recent months — like the blockbuster Tableau initial public offering that now values the maker of data visualization software at nearly $2 billion.
But here’s an interesting thing about Tableau, and many of the other big succeses in Seattle in recent years. The money behind these companies didn’t come from Seattle venture firms. In the case of Tableau, it pulled in cash from NEA and Meritech, two huge Silicon Valley powerhouses.
The same goes for Zillow, whose venture backers included Benchmark Capital and Technology Crossover Ventures. Success stories like PopCap Games — sold to EA for up to $1.2 billion — and DoubleDown Interactive — sold to IGT for up to $500 million — also were largely built without Seattle money.
It’s great that these companies are being built in Seattle, with other people’s money. But relying on imported capital — just like relying on imported brains — isn’t a long-term path to success.
