David Rosenthal knows about the dearth of early-stage financing options available to entrepreneurs in the Seattle region. The venture capitalist spent four years working in the heart of Seattle’s startup ecosystem as a principal at Madrona Venture Group, where he realized the need for more available investment dollars.
That’s why Rosenthal’s new seed-stage venture capital firm, Wave Capital, will be paying close attention to startups and entrepreneurs based in Seattle.
Rosenthal left Madrona last year and returned to the Bay Area, where he helped launch Wave Capital with two veteran tech executives: Riley Newman, the 10th employee at Airbnb who built its data science team, and Sara Adler, a former corporate development chief at Airbnb who previously worked at Facebook, Dropbox, and Menlo Ventures.
Wave Capital just closed its first fund, reeling in $55 million that will be used to invest in 18-to-20 startups over the next few years. The firm plans to differentiate itself from other investors by focusing on early-stage marketplace startups, using lessons learned from the initial days at market leaders like Airbnb and Rover — Rosenthal worked closely with the Seattle pet-sitting startup while at Madrona — to help its portfolio companies get off the ground.
“We are big believers in the power of the marketplace business model,” Rosenthal said. “It’s also just what we know.”
While a typical seed fund today may spread its dollars across 50 or so companies, Wave Capital will focus on a smaller group of startups, taking a board seat with each and pledging more hands-on time.
“We’re taking on a lot more risk on each company, but that’s predicated on the belief that we can change the probability of success based on our experience and the networks we have,” said Newman, who spent six years at Airbnb.
Seattle will also be a core investment focus for Wave Capital. Rosenthal said that in the Bay Area, you can “throw a stone and hit a seed-stage venture capital firm.” That’s not the case in Seattle.
“The delta in the amount of talent between Seattle and San Francisco does not merit such a drop in capital,” he noted. “There needs to be a lot more, and we want to be apart of that.”
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To that end, Wave Capital is following a similar thesis followed by new Seattle firms such as Pioneer Square Labs and Flying Fish that are also betting on the local talent working at companies like Microsoft and Amazon who can build the next great startup with the right early-stage investment partners.
Newman said the firm wants to tap into the raw technical talent of people who have great ideas and would make an top-notch entrepreneur, but may face barriers such as fundraising. That’s what happened with Wave’s first investment in Alma, a donation platform launched by former Airbnb employees.
“We talked with them nine months before forming the company, thinking through the marketplace dynamics, team construct, and fundraising path,” Newman said. “In doing so, we came to terms that made sense for them to get up and running without the distraction of fundraising.”
Added Rosenthal: “That’s what is missing in Seattle and that’s what we hope to bring.”