Geoff Entress has an impressive resume. The former securities lawyer and financial analyst is a venture partner at Voyager Capital and an angel investor in more than 80 Pacific Northwest startups, including successful companies like Hootsuite, Whitepages, and LiquidPlanner.
But as he sat outside this week on a beautiful sunny fall afternoon in downtown Seattle, Entress explained why his next project is the best yet.
“I’ve done a lot of other things, but this is definitely the most exciting and has the potential to be the most lucrative,” he said. “I think we’ve captured lightning in a bottle with this one.”
Entress, Greg Gottesman, Mike Galgon, and Ben Gilbert are the co-founders of Pioneer Square Labs (PSL), a new Seattle-based company that today announced $12.5 million in funding from 13 venture capital firms and more than 50 angel investors. Foundry Group led the round and its managing director Brad Feld — also co-founder of Techstars — will take a seat on Pioneer Square Labs’ board.
Other venture investors include Greycroft Partners, Madrona Venture Group, Maveron, Menlo Ventures, MHS Capital, Sinclair Digital, Techstars Ventures, Trilogy Equity Partners, True Ventures, and Voyager Capital. Bezos Expeditions, the investment arm of Amazon.com CEO Jeff Bezos, and Vulcan Capital, the investment arm of Microsoft co-founder Paul Allen, also participated.
GeekWire first reported on Pioneer Square Labs two weeks ago, but now more details have emerged about this stealthy, unique organization that involves some of the region’s more accomplished entrepreneurs and investors who have proven track records. Gottesman, a co-founder, is sharing more details about the new venture today in a fireside chat at the GeekWire Summit in Seattle.
Housed on the fifth floor of the Galvanize building in Pioneer Square, Pioneer Square Labs calls itself a “startup studio.” It is not an accelerator, incubator, or venture fund. Rather, it’s a small 8-person team of founders, developers, and designers that rapidly test and validate new startup ideas before recruiting an executive team to build out an actual spin-off company.
“The reality is that most companies will still launch the same way as they always have: The founders have an idea, they’ll bootstrap it themselves or go out and get funding, and start the company that way,” Gottesman explained. “That traditional model works today, it will work tomorrow, and it will work going forward. We think there’s another model.”
The original idea for PSL came about after Gottesman helped launch a handful of startups within Madrona Venture Group, the Seattle venture capital firm where he served as managing director for 18 years before moving to a part-time role earlier this year to focus on the new venture.
Madrona incubated startups like Z2 Live, Farecast, and Rover.com from inside the firm, providing initial financial and advising support before the companies took off on their own. Gottesman, who worked alongside Entress for a decade at Madrona, noticed this ad-hoc trend and thought there could be a more organized way of matching the right people with great ideas.
Then, this past December, Gottesman helped form Madrona Venture Labs, an incubator within the firm that develops and validates startup ideas before spinning them off into their own companies by way of recruiting, product development, financial investment, and more. Spare5, a Seattle startup run by a former Getty Images executive that just raised $10 million, is the first company born out of Labs.
PSL is similar, but will engage in this process at a much larger scale. It also has the financial backing and support of not one VC firm, but rather 12 — and not to mention the 50-plus angel investors like Expedia and Zillow co-founder Rich Barton, ARCH Ventures co-founder Bob Nelsen, Seattle super angel Rudy Gadre, former ExactTarget (sold to Salesforce for $2.5 billion) exec Scott Dorsey, Hootsuite founder Ryan Holmes, and more.
The core PSL team is also impressive. Along with the co-founders, the company includes people like Aria Haghighi, a former Apple Senior Manager and Entrepreneur-in-Residence at the Allen Insititute for Artificial Intelligence; Ryan Kosai, a former engineering leader at ExtraHop and Marchex; and Leah Severe, a “Swiss Army Knife” with managing experience at seven companies in the last 15 years.
“The people at PSL are exceptional,” wrote Marcelo Calbucci, co-founder of companies like EveryMove and Samba. “So good at what they do, I feel like I’m the impostor among them and have the most learning to do, which is also exciting. Basically, I found a ‘job’ I could do for the rest of my life.”
The Pioneer Square Labs structure
PSL starts with an original idea and spends roughly four months working hard to quickly validate it, using the fresh investment round it just raised for financial support. That means building prototypes, talking with customers, doing market analysis, etc. — a “fail fast” process that helps separate signal from noise.
If an idea doesn’t seem to pick up traction, PSL moves on to the next one. However, if one sticks, PSL will recruit an appropriate executive team to build off the work that’s already been done and ultimately spin the new startup out of PSL into its own entity. PSL and its investors would then own a percentage of the spin-out — as would the new executive team for said startup — which could also seek additional funding, likely from any of the studio’s backers.
Galgon, who co-founded online advertising giant aQuantive that sold to Microsoft for $6 billion in 2007, called this a “very powerful formula for building companies.”
“Ultimately, a startup is about finding the narrow segment of customers and narrow definition of your product that work, then using that and expanding from there,” he said. “Our formula is really based all around making that happen multiple times in multiple businesses for multiple CEOs.”
Gottesman stressed that finding the right entrepreneurs to take over the work done by PSL will be the most crucial part in determining the studio’s success.
“Everything we are about is finding those great entrepreneurs and trying to be worthy of them and create companies worthy of their time,” he said.
Gottesman pointed to Rover.com as a perfect example of why he’s helping launch PSL. The venture capitalist came up with the idea for a service that connects dog owners with people to care for their pooches at a Startup Weekend event in Seattle four years ago.
He then took the bare bones business plan and helped recruit a small team to get the startup off the ground, while Madrona provided the initial investment. Led by CEO Aaron Easterly, who joined the company shortly after the Startup Weekend event, Rover.com now has more than 40,000 sitters in the U.S. across 10,000 cities, employs 105, and has raised $50 million to date.
Gottesman admitted that Rover.com probably wouldn’t exist today had he tried to run the company.
“When we had some signal that this could be a big business, I handed that company to Aaron and there is zero question that he’s done a much better job of running, growing, and scaling that company than I could have,” he said. “With Aaron, we had the right person with the right passion and the right experience for that space. So to the extent we can do that again a bunch of times, it’s going to be a lot of fun.”
Reducing risk for would-be entrepreneurs
Gottesman explained how there are countless tech workers in Seattle that would embrace an opportunity to run a startup, but can’t make the leap for whatever reason. Perhaps they are too comfortable at a high-paying job at a large corporation; maybe it’s not possible for them to take no salary for 24 months — simply put, it’s too risky of a career change.
The idea at PSL is to reduce the risk involved for that Microsoft or Amazon employee who wants to run a startup but either does not have the right idea or can’t endure the financial burden.
“Part of our job is to cull and work on best ideas,” said Gilbert, the young entrepreneur who co-founded Madrona Venture Labs and previously ran Microsoft Garage. “The other part is that we are professional de-riskers.”
PSL will focus on ideas that are testable in a relatively short time frame. That means consumer and lightweight business apps, rather than something in deep enterprise software or biotech — think startups like Spare5, which enables everyday people to perform short tasks on their smartphone, or Rover.com, the dog sitting service.
Another unique part of PSL is the vast number of backers involved with the company. Having a wide range of investors, both from the venture capital and angel sides, is an important part of its strategy.
“Our investors are investing to get access to the companies we will create,” Entress explained. “We think it makes sense, then, to have a very broad base of investors, as opposed to being captive to one that may not be interested in all the things we create. That broad base of the most active investors here in the region, whether it’s the venture capital firms or angels, will give our entrepreneurs the best opportunity to get funded.”
This also gives PSL a vast rolodex of contacts to bounce ideas off of and potentially recruit entrepreneurs. And, for the CEOs that end up running the spin-off companies, they will have access to numerous firms and angels that can provide funding.
“Pioneer Square Labs does not intend to invest directly in these companies,” Gottesman noted. “We have $12.5 million that will go toward the operations of the business for the next four, five years. We are looking for our partners to ultimately validate what we’re doing and to invest in these companies.”
Feld, who runs Colorado-based Foundry Group and was an early investor in companies like FitBit, MakerBot, and Zynga, called the structure of PSL “brilliant.”
“The founding team of Greg, Geoff, Mike, and Ben, is an awesome one with huge reach in the Seattle startup community as angels, VCs, and founders,” said Feld, also an investor in Rover.com and Spare5. “The investor group is broadly diverse with strong links outside of Seattle, which is a great base for any of the companies emerging from PSL to raise money from.
Doing it in Seattle
While PSL’s venture capital backers hail from across the country, there’s no doubt that the company is all about Seattle, a technology hub filled with technical talent — not only at places like Microsoft, Amazon, and hundreds of startups, but also at engineering offices of Silicon Valley giants like Google, Facebook, Dropbox, Twitter, Salesforce, and Uber that have now have a presence in the Seattle region.
PSL believes that there are hundreds of would-be entrepreneurs at companies around the city that just haven’t found the right idea or opportunity to make the startup leap.
“Seattle is the perfect place for this,” Gottesman said.
Galgon added that the Seattle technology ecosystem, and particularly the startup community, will reap benefits if PSL is successful.
“This is a crucial and needed element of the Seattle startup ecosystem,” said Galgon, who studied at Harvard Business School with Gottesman. “If you think of the category of person we just talked about, who could and should go run a startup but will never do so because of those friction points, we are effectively sucking all that friction out of the system. There is a virtuous cycle that comes from the creation and growth we are going to help enable.”
The long-term vision for PSL also extends past just Seattle, the Pacific Northwest, and the United States.
“We can hopefully do great things for the Seattle community, but our goal is more broad than that,” Gottesman said. “We want to create companies that make a meaningful change in the world. With the group of folks we have, I don’t think it’s too crazy of a goal.”