Investors are keeping Seattle from reaching the highest echelon of world-class technology hubs.
That’s at least according to Dave McClure, the Bay Area-based venture capitalist and former PayPal exec who co-founded the 500 Startups accelerator program.
McClure on Tuesday tweeted about Unilever’s $1 billion acquisition of online men’s razor company Dollar Shave Club, noting that he thinks Los Angeles (home to Dollar Shave Club) has now passed New York City as the second-hottest technology hub behind Silicon Valley.
— Dave McClure (@davemcclure) July 20, 2016
That sparked a discussion about Seattle’s place on the list. Tren Griffin, a senior director at Microsoft who participated in a similar conversation on Twitter last month with venture capitalist Fred Wilson, responded to McClure’s tweet and referenced the longevity of Seattle-based companies like Zillow, Tableau, Expedia, and others.
Maybe someday companies in NY & LA won't sell out like founders in say Seattle (Z, DATA, EXPE, FFIV, JUNO, AMZN)
— Tren Griffin (@trengriffin) July 20, 2016
McClure responded with this:
— Dave McClure (@davemcclure) July 20, 2016
McClure later said that while Seattle has the talent and long-lasting tech giants like Microsoft and Amazon around, there are simply not as many active early-stage investors compared to Silicon Valley.
This stance is not new, as Seattle has long been critiqued for its general lack of investors, both from the angel side and VC. In fact, McClure spoke at the GeekWire Summit this past October about this very topic.
“There is certainly plenty of talent in the Seattle area,” he said. “And clearly, the investor community is the weak link.”
McClure compared Seattle to Boston — two places with a ton of talent, but “for whatever reason the angel community didn’t develop there.”
“[Mark] Zuckerberg left Boston famously because there wasn’t a willingness of investors to put money in,” McClure noted.
McClure said he was puzzled that a region with tech corporations like Microsoft and Amazon wasn’t producing more startups and investment money. He called Amazon a “great training ground for people to understand the startup mentality,” but didn’t say the same about Microsoft.
“In a lot of ways, Microsoft may be similar to Google: a warm, fuzzy place for people to camp out for decades,” he explained at the Summit. “It’s not quite hard-edged enough to create what I think entrepreneurship is all about.”
But beyond Microsoft and Amazon, there are plenty of hugely-successful tech companies that grew in Seattle, as Griffin noted in his tweet (Related: Griffin’s guest post, 12 things Seattle can teach others about jobs, economic development and building a better city).
So why aren’t there more angel investors? It could be something related to risk-taking habits, McClure said.
“It might just be because people are crazier in the Bay Area,” he noted at last year’s GeekWire Summit.
The Seattle tech scene could perhaps benefit from different approach to startup investing that McClure discussed at the Summit. He prefers to spread smaller bets over a lot of startups instead of the traditional model of attempting to pick a few winners.
“I think [other VCs] will look like idiots in five to 10 years, or at least 90 percent of them,” McClure said. “Ten percent of them will get lucky and look smart. But I think the investment model is incredibly flawed.”
This mentality might enable investors to take smaller bets, decreasing the amount of risk while giving opportunity to more startups in the process at the same time.
But for now, the Seattle startup ecosystem has yet to see recent breakout successes along the lines of a Tableau, Zillow, Zulily, or similar company, as my colleague John Cook noted in December. Cook noted that “money isn’t sloshing around from home-grown sources, meaning early-stage entrepreneurs have fewer choices in their backyards.”
“Many entrepreneurs solve this capital crunch by heading south to raise money,” Cook wrote. “While very much doable — see OfferUp, Tune, etc. — it doesn’t make things easy on entrepreneurs, especially compared to Silicon Valley.”
In fact, the recent MoneyTree report showed that venture capital investments sunk 61 percent in Washington state during the second quarter, with just $175 million spread across 24 deals.
There may be other factors outside of investment money, too. Compounding this issue could be the growth of Silicon Valley engineering centers in and around Seattle — Google, Apple, Facebook, Twitter, Uber, Lyft, Salesforce, and many others have large offices in Seattle that are swooping up a swath of the available tech talent. To McClure’s point about the comfort of places like Google and Microsoft, these places often provide a less-risky destination for engineers and other tech workers, perhaps reducing the amount of new startup creation.