Seattle’s tech industry is flourishing.
Amazon.com is booming, becoming one of the most dominant players in business. Dozens of Silicon Valley tech giants are setting up shop in Seattle, tapping a world-class talent pool. Microsoft is rebounding under the leadership of Satya Nadella, and the University of Washington continues to churn out top computer scientists.
But there continues to be one big chink in the armor of Seattle’s tech ecosystem.
There’s just not enough venture capital floating around the region. And by venture capital, I just don’t mean the money. It’s the brain power that comes along with that cash, the folks who have the connections, smarts and moxie to help transform startups into giant enterprises.
I’ve touched on this issue many times in the past, and it reared its head again earlier this week after perusing a new list from CB Insights and The New York Times which ranked the top 100 venture capitalists in the country.
How many Seattle area investors made the list?
By my count, the same number as World Series appearances by the Mariners.
You’ll see a lot of familiar names on the list: Fred Wilson of New York-based Union Square Ventures (#2); Bill Gurley of Silicon Valley’s Benchmark Capital (#8); and Brad Feld of Colorado’s Foundry Group (#19).
But you won’t see any with a Seattle address. This is not good.
At some point, Seattle’s venture capital ranks will need to take root, and superstars will need to emerge. It has been 41 years since Microsoft was founded, and 22 years since Jeff Bezos got Amazon.com rolling.
Is that enough time for a startup and venture capital ecosystem to grow?
It seems so. There’s certainly not a lack of money sloshing around Seattle. But the money tends to flow into other ventures — not into startup investing. It’s something Seattle venture capitalist Chris DeVore has described as a lack of “recycled capital.”
Why have we not seen a brand-name VC emerge in Seattle?
To answer that question, take a look at the criteria by which The New York Times and CB Insights ranks its top 100 VCs:
- An investor’s exits – the frequency/volume, size, and stage of entry
- Network centrality – connectivity to other investors. Think of it as akin to Google Pagerank.
- Consistency – stage, industry consistency of investments
- Illiquid portfolio company value – frequency, size and stage of entry in high value (but un-exited companies). Given relatively less weight as these are paper valuations
- Recency of performance – Our focus was on these metrics since 2008. As a result, we didn’t give a lot of credit to those who made glorious picks in the 80s, 90s, or early 2000s. This is a ranking of today’s best VCs — not the best VCs in history.
The most important factor here is a clear one: Lack of big exits.
Seattle has produced some big publicly-traded companies in the past 10 years, namely Zillow and Tableau Software. But the venture money that went into those businesses did not originate in Seattle, apart from Zillow co-founder Rich Barton’s past winnings from Expedia. Even so, there was not a Seattle venture firm in either of those deals.
And the success of those companies — as well as the arrival in Seattle of Silicon Valley giants such as Uber, Twitter, Facebook and Salesforce.com — has taken some of the oxygen out of the room when it comes to the startup ecosystem. Long-term, this will be a good thing for the region as more geeks eventually decide to make the entrepreneurial or VC leap. Short-term, it is causing some pain.
How do things turn around?
Quite simply, Seattle venture capitalists need what the Mariners need.