An Open Letter to our Colleagues
More than ever, we have an opportunity to tell the world about our glass of water in the Pacific Northwest. While it may be easy to focus on the glass being half empty, it does not serve our industry well and is not reflective of how Staenberg Venture Partners views the current situation here. Therefore, we are writing you hoping to start a positive dialogue in our community about why venture capital investment in the Pacific Northwest is a glass half full.
In the past several months, there has been considerable media coverage heralding the imminent demise of the Pacific Northwest venture community and the dismal outlook for local technology entrepreneurs. One VC I spoke with about this wondered if the reporters covering the tech community here were confused and thought maybe they were dislocated crime reporters having to fill in on the tech beat for awhile. That doesn't seem far off sometimes.
Sometimes the comments coming out of our own community also resemble a negative editorial. In a recent article on venturecapitaljournal.net, local venture capitalists offered bleak assessments, saying that new company formation had ground to a halt and that local VC firms might go out of business if things do not improve. Another article presented reasons why local venture capitalists should expect the worst: there will be another round of company failures; sluggish demand for IT; and VCs aren't investing. While we at Staenberg Venture Partners respect the views and experience of our colleagues, we would like to present another perspective: that of optimism for the future of Pacific Northwest venture investing and early-stage technology.
Staenberg Venture Partners believes that those who focus on the region's unique strengths will help build this young community to last. We view the Pacific Northwest as a fertile ground for venture investing because it offers a unique combination of resources: top research institutions such as the University of Washington; successful technology companies such as Microsoft and Amazon; an active entrepreneurial base; and natural synergies with Silicon Valley. While the San Francisco metro area receives the most venture capital as a share of its economy because of its strong presence in a wide range of high-tech sectors, the Seattle metro area ranks #2 out of 50 for the amount of venture capital as a percentage of gross metropolitan product. This is a key indicator of innovation capacity, and technological innovation accounts for over 2/3 of per-capita economic growth.
Nor does this region lack educated resources. The University of Washington received over $800 million in research grants in 2002, and countless technology initiatives are launched every year by UW Computer Science and Engineering PhDs. Thousands of the best and brightest minds in technology are employed by Microsoft, and an overwhelming number of local startups are founded by ex-Microsoft executives. Intel continues to invest hundreds of millions in Pacific Northwest technology startups from its Oregon headquarters. Amazon has invested billions in Internet startups since the bubble, while former Boeing engineers have gone on to found winning companies such as Classmates.com.
Despite our strengths, however, we need to recognize that the Pacific Northwest venture community is still in its nascent stages of development compared to more established regions such Silicon Valley and Boston. Thus, it is of paramount importance that members our community do what we can to help build our image and continue to attract interest from a national audience. In order to cultivate the Pacific Northwest's image nationally, we must focus on the possibilities of this active technology region, rather than the limitations. Local venture firms must embrace humility and pride at the same time by accepting, on the one hand, that the Pacific Northwest is not the "epicenter of venture investing," while on the other hand, Seattle is the only city that maintains such strong geographical and cultural ties with the Sand Hill Road gang.
Another differentiator of the Pacific Northwest in the industry is this notion of being a strong local partner for outside VC firms who wish to invest in Northwest technology companies, as well as to provide inroads to Seattle-based corporate partners. Those who attended the EVCA event at Columbia Tower Club last year, at which Bill Gurley of Benchmark Capital presented, know that VCs in the Valley think very highly of Seattle's entrepreneurs, but are usually only willing to invest in companies where they have a strong local co-investor. In addition, Seattle VCs can often provide access to companies such as Microsoft that outside VCs don't have connections with. Those firms who understand how best to position the Pacific Northwest venture community within the national landscape, and who emphasize building bridges to industry players in other key regions, will find themselves uniquely poised to capitalize on the opportunities and challenges of the current investing environment.
Finally, I wanted you to know that our words do have an impact. I travel to the Bay Area almost every week. They are overwhelmingly "hearing" that things are not good here. Yet, there are a lot of great things happening here. This is no crime scene. It is the beginning of a great era of important and enduring technology startups. Let's talk about it. Let's report on it. And let's fill the glass to the brim.
Comment 1.
jon,
Great letter! I agree with you 100%. When I am talking to reporters or talking at conferences, I always stress how great seattle is and how it is positioned better than most places. Thanks for your energy in submitting this.A few additional thoughts.....the biotech and med device space is a huge strength for seattle. I realize you didn't have enough space in a letter to the editor to cover everything, but seattle has world class companies in biotech and med device. In fact, seattle is considered by many to be the worlds center for medical ultrasound imaging.Another thought is that seattle is very cheap to live compared to other areas. If one is willing to drive 30 minutes or more, one can get a nice house for $250k (3 bedroom, 2 bath). The equivalent costs 800k in the bay area and 500k in boston.Another thought is traffic. Seattle has no traffic compared to LA, chicago, nyc, boston, atlanta, dallas etc. Granted, seattle has more traffic now than 10 or 20 years ago. But by an objective measure, our traffic is fine. I used to commute 3 hours a day in jersey, my wife 4 hours a day. So i don't feel sorry for those that whine that it takes 40 minutes to get to redmond. :-)) In fact, if they would drive at 6:30am there is no traffic. In nyc, you have to be on the road by 5am to miss traffic.So hears to a great future for a great city!
Thanks again,
PatrickPatrick
Ennis :: Tue, 2003/04/15, 18:49
Comment 2.
Jon:
I don't know why every major tech area in the United States has to "apologize" for not being Silicon Valley. It is clear that there is a cluster of very smart people in the Valley, but there are some very smart people doing some amazing things in Seattle. Not just Seattle, but in some very unlikely areas. The short sided nature of those in the Valley that spend more time on 101 than they do on an airplane (it would take less time to fly than to get to work on 101) are missing some very interesting and highly intriguing ideation.Last time I looked, Microsoft was still located in Seattle. There are more, and they are all not within a 50 mile radius of Stanford.
Ed Schifman :: Wed, 2003/04/16, 14:15
Comment 3.
Jon,
We are a fund co-located in NJ and Tel Aviv. One of our companies, Prosight, is located, and thriving nicely in Portland. Our exposure to local VC's, the pool of management, and cost structure have been incredibly positive. I am convinced that, if it was located in the Valley, it would have followed the herd mentatility that has caused investors to lose multiple hundreds of millions (shall I say billions?) of dollars on hyper-scaling economically doomed initiatives. While I agree with your point that the region has all the ingredients for sustained successes, it leaves the reader with the impression that the area is suffering from an inferiority complex. Of course, there are strengths and weaknesses, but the point is that these differences should be celebrated and exploited. Entrepreneurs will choose Valley vs local VC's and that capitalistic choice will spur each to differentiate and add more value.I suspect that the Venture retrenchment you have experienced is the market rightly sizing capital to the opportunity. Doing this in a rapid fashion is a tribute to the area, not a condemnation. After all, this is what we advise portfolio companies to do; size to the opportunity.It would be great to see at next year's conference either entrepreneurs or LP's highlight why believe the NW is such a fertile ground for investors and innovation...
Charlie Federman :: Thu, 2003/04/17, 10:58
Comment 4.
Jon,
While I agree there's "bench strength" among tech entreprenuer's in the PacNW, it's time we acknowledge the importance of providing access to capital BEYOND hitech/biotech to turning the local economy around. It should be of great concern that 3 years after the bubble burst, the dominant question among VC/Private Equity managers is, "When will the tech IPO market come back?" It's as if other industries don't exist. So here are some facts that might be useful to reframing our perspectives.Hitech/biotech employs less than 20% of workers in WA State. This means 80% of workers are employed by other industries. Even looking at a broad index like the Wilshire 5000, hitech/biotech represents less than 20% of its total market capitalization.Yet, private equity investment flows are the exact opposite. In each of the last 5 years, more than 80% of all VC/Private Equity dollars flowed into hitech/biotech. It makes little economic sense to devote 80% of growth capital to industries that represent only 20% of the economy, unless the goal is to create or reflate a bubble.That investment managers continue to focus on hitech/biotech goes a long way to explain why the US has a $100 billion overhang in VC/Private Equity. It's merely an extention of a larger problem, ie, managers sitting on the sidelines waiting for the hitech/biotech IPO markets to reignite. It's like the private equity industry is locked in some kind of etheral, continuous, "Waiting for Godot" moment. What Seattle needs is a recognition that there'll be no significant upturn in our regional hitech/biotech industries until the other 80% of the economy has adequate access to capital. And as for IPO markets, it could to be a very l-o-n-g time before they get as hot as the 90's.Hitech/biotech won't be leading us out of this recession. Its probably time to refocus the considerable talent within local VC/Private Equity firms at reinvigorating the "Old Economy".
Just trying to be honest,
Glenn Gregory
Obsidian Investment Advisers, LLCGlenn
Gregory :: Mon, 2003/04/21, 23:17
Comment 5.
Jon,
Great letter. At times like these it is easy to engage in random finger pointing. We need to remember that the whole hi- tech bio-tech industry is barely 20 years old. Sure it will have its ups and downs, feast or famine periods. The key to promoting a strong Puget Sound economy is your sugestion that all members of the community continue to promote the region. Seattle has always had its ups and downs. Remmember "the last one out of town , turn out the lights", it didn't happen then it won't happen now.PeterPeter Allison :: Wed, 2003/04/23, 14:36
6. Jon,As valuable as it has been to be a deep-pocketed investor with plenty of fresh capital in the current investing environment, it will be advantageous to be one of the last-funds-standing in a region that will certianly have its fair share of entrepreneurial activity. I am bullish on Seattle myself, though I have to disagree with those that compare Seattle traffic favorably to the Bay Area.I must also disagree with the conclusion Mr. Gregory draws from his old economy thesis. While the majority of employees in Washington may be in non-high tech industries (how do you define that anymore? aren't consumer banks fairly high tech these days?), I would posit that 80% of Washington's economic growth will be the result of technological innovation. And this point is almost too obvious to mention: when we invest, we invest in prospects for growth.As for the overhang, this too shall slowly come into equillibrium. It is important to keep in mind that in a globally competitive environment, investment in intellectual property is critical to the future economic health of every community. Broadly speaking, this investment comes in many forms, including robust equity and debt markets (for both public and private investment) as well as strong support for education and the social fabric of our communities themselves. Without these structures in good health, and without continuous technological innovation and progress, I am afraid we will experience a much worse fate than some currently perceive themselves to be suffering.
Bo Daniel Brustkern
Rustic Canyon Ventures, LP
Bo Brustkern :: Thu, 2003/04/24, 11:17
Comment 7.
Jon,
In the last year I have personally screened over 350 new deals out of the Northwest. Last year Ignition Partners made 6 new investments. The bar has certainly been raised on entrepreneurs, but good deals are still getting done. In fact, the pace is ahead of the pre-bubble days before 1996. The media tends to have a very short memory and keeps comparing todays environment to the go-go days of 1999 and 2000. Sure raising capital is harder than then, but it is way easier than the early 90s or late 80s. I recently met an entrepreneur who raised money in the late 80's in an "A" round with less than a $1M pre! He raised $700K.There are a number of other things that bode well for people starting companies today. When I started Loudeye in 1997, capital was plentiful, but people were scarce. When I needed to rapidly scale my development team, I ended up buying another company who already had 28 developers since it was cheaper and faster than trying to hire them all in the open market! Today there are many quality people at all levels available. Salary and option expections are back down to earth. People are again interested in having jobs they love and hard problems to solve that keep them engaged. No-one has the expectation to get rich quick, and I think that is a good thing all around. Getting rich slowly is much more reasonable. Offics space costs have also come way down. I just subleased the originial Encoding.com building for half of what it was rented for just a year ago. An entrepreneur I recently met in Portland is paying $6 per year per sq ft, furniture and data center included! You can buy assets of failed companies for pennies on the dollar. There has never been a less expensive time to start a company.On a macro level in IT, most budgets have been frozen or have shrunk since 2000. But the useful life of technology is about 2-4 years. Much of what was bought in the boom is becoming outdated by the ongoing marching of Moore's law. People are going to have to start spending again soon. And now is the time to start that company to capitalize on the coming growth. And yes, start it here in the Northwest!
Martin Tobias
Martin Tobias :: Sat, 2003/04/26, 14:04
Comment 8.
I agree on the glass being half-full. I tried out my first startup my Junior year in college in '89. I remember the company (Aion, just a stonethrow away from Stanford campus) being called a living-dead. Pretty common then and pretty common again. I loved it though, so have been at startups ever since.The first two startups I joined were self-funded by someone without cash und and thus forced to be cashflow positive. The first one in particular was really great. Everyone was there because they loved creating something. I liked the fact that I was given way more responsibility than any "respectable" company ever would have to a young graduate. I worked at half the salary of my Stanford peers, but figured I was the luckiest guy around. And I didn't even know I could get stock options. When the founder sold the company out for $15 mil (four times revenue), he got to keep 80%. He gave all of us some stock--not as compensation or because he was required to, but because I wanted everyone to share in the positive outcome. It was really great--primarily because of the people.The late 90's were insane. While some ideas were bad, I think people are too quick to judge. I bet a fair number of the ideas currently brandished as hare-brained will eventually succeed. Partly, because the teams will be better and partly because they won't have to compete with umpteen other overfunded companies who are giving away stuff because they don't have to be profitable any time soon.I'm much happier now with most MBAs and large-company people who were just there for their "mother lode" to have fled the scene. I do think you need to be conpensated for the risk that you take, but that should never be the primary reason to do a startup.I'm seeing some entrepreneus having burned by VCs. Some personally because they wouldn't allow the company to be sold for 100's of millions and some because they ended up working with people who looked good on paper, but were not the people they enjoyed working with. So many are going back to boostrapping, so that they can choose who they work with and so that they can sell for $15 mil if they think that's the right thing. As for the Seattle area, I love it up there. However, I thought that people are not connecting the way they do in Silicon Valley and that people were trying to apply the lessons they learned when riding with Microsoft to a much smaller environment. So, for now, I'm in Silicon Valley. Yes, I'm starting a company, but since it doesn't pay the bills and I have a family to support, I'm also doing consulting for startups who are generating revenue or were able to raise money recently. It's a tricky blancing act, but I love it.
Konstantin Guericke :: Mon, 2003/04/28, 22:19
Comment 9.
I agree with your outlook on the Pacific Northwest, but more from the standpoint from where I write this comment, which is from the Philippines. After spending years in Silicon Valley, after the crash I looked for more profitable locations to run my company, and so ended up reorganizing in the Philippines. My connection back to the states is no longer centralized in the Bay Area, but up in the Seattle region. This is due to the international connections to Asia inherent in the Pacific Northwest in combination with the lower cost of doing business in that region compared to Silicon Valley (still). Start-ups concentrating on expanding horizons initially beyond the continental US would be very well advised to consider the NW. I also agree with the comment regarding non-tech investments. The game has changed, and there can no longer be a rush to IPO. The fundamentals need to be stressed, and as such, many innovative concepts can continue to come from outside the tech world - and make profitable return for investors.Having said that, I made a conscious decision to forgo any search for/acquisition of additional VC for my company... for the reason that I found the cash cost to be overly high in the wake of the crash. So from my perspective as an entrepreneur, to be successful in VC investing now it is not so much a question of where you are located, but what you are stressing to your portfolio companies and how willing you are to be involved with the company for the longer haul.
Troy Lapsys :: Tue, 2003/04/29, 17:42
Comment 10.
Jon,
Thank you for taking the time to point out the positive side of our current situation. I believe that our entrepreneurial community is willing to dig in and do the hard, but realistic, work that it will take to get to the next level. Instead of looking at the glass as "half empty" we should challenge ourselves to make a positive difference.
Michelle Gonzalez
MIT Enterprise Forum of the Northwest
Michelle Gonzalez :: Thu, 2003/05/01, 09:58
In the past several months, there has been considerable media coverage heralding the imminent demise of the Pacific Northwest venture community and the dismal outlook for local technology entrepreneurs. One VC I spoke with about this wondered if the reporters covering the tech community here were confused and thought maybe they were dislocated crime reporters having to fill in on the tech beat for awhile. That doesn't seem far off sometimes.
Sometimes the comments coming out of our own community also resemble a negative editorial. In a recent article on venturecapitaljournal.net, local venture capitalists offered bleak assessments, saying that new company formation had ground to a halt and that local VC firms might go out of business if things do not improve. Another article presented reasons why local venture capitalists should expect the worst: there will be another round of company failures; sluggish demand for IT; and VCs aren't investing. While we at Staenberg Venture Partners respect the views and experience of our colleagues, we would like to present another perspective: that of optimism for the future of Pacific Northwest venture investing and early-stage technology.
Staenberg Venture Partners believes that those who focus on the region's unique strengths will help build this young community to last. We view the Pacific Northwest as a fertile ground for venture investing because it offers a unique combination of resources: top research institutions such as the University of Washington; successful technology companies such as Microsoft and Amazon; an active entrepreneurial base; and natural synergies with Silicon Valley. While the San Francisco metro area receives the most venture capital as a share of its economy because of its strong presence in a wide range of high-tech sectors, the Seattle metro area ranks #2 out of 50 for the amount of venture capital as a percentage of gross metropolitan product. This is a key indicator of innovation capacity, and technological innovation accounts for over 2/3 of per-capita economic growth.
Nor does this region lack educated resources. The University of Washington received over $800 million in research grants in 2002, and countless technology initiatives are launched every year by UW Computer Science and Engineering PhDs. Thousands of the best and brightest minds in technology are employed by Microsoft, and an overwhelming number of local startups are founded by ex-Microsoft executives. Intel continues to invest hundreds of millions in Pacific Northwest technology startups from its Oregon headquarters. Amazon has invested billions in Internet startups since the bubble, while former Boeing engineers have gone on to found winning companies such as Classmates.com.
Despite our strengths, however, we need to recognize that the Pacific Northwest venture community is still in its nascent stages of development compared to more established regions such Silicon Valley and Boston. Thus, it is of paramount importance that members our community do what we can to help build our image and continue to attract interest from a national audience. In order to cultivate the Pacific Northwest's image nationally, we must focus on the possibilities of this active technology region, rather than the limitations. Local venture firms must embrace humility and pride at the same time by accepting, on the one hand, that the Pacific Northwest is not the "epicenter of venture investing," while on the other hand, Seattle is the only city that maintains such strong geographical and cultural ties with the Sand Hill Road gang.
Another differentiator of the Pacific Northwest in the industry is this notion of being a strong local partner for outside VC firms who wish to invest in Northwest technology companies, as well as to provide inroads to Seattle-based corporate partners. Those who attended the EVCA event at Columbia Tower Club last year, at which Bill Gurley of Benchmark Capital presented, know that VCs in the Valley think very highly of Seattle's entrepreneurs, but are usually only willing to invest in companies where they have a strong local co-investor. In addition, Seattle VCs can often provide access to companies such as Microsoft that outside VCs don't have connections with. Those firms who understand how best to position the Pacific Northwest venture community within the national landscape, and who emphasize building bridges to industry players in other key regions, will find themselves uniquely poised to capitalize on the opportunities and challenges of the current investing environment.
Finally, I wanted you to know that our words do have an impact. I travel to the Bay Area almost every week. They are overwhelmingly "hearing" that things are not good here. Yet, there are a lot of great things happening here. This is no crime scene. It is the beginning of a great era of important and enduring technology startups. Let's talk about it. Let's report on it. And let's fill the glass to the brim.
Comment 1.
jon,
Great letter! I agree with you 100%. When I am talking to reporters or talking at conferences, I always stress how great seattle is and how it is positioned better than most places. Thanks for your energy in submitting this.A few additional thoughts.....the biotech and med device space is a huge strength for seattle. I realize you didn't have enough space in a letter to the editor to cover everything, but seattle has world class companies in biotech and med device. In fact, seattle is considered by many to be the worlds center for medical ultrasound imaging.Another thought is that seattle is very cheap to live compared to other areas. If one is willing to drive 30 minutes or more, one can get a nice house for $250k (3 bedroom, 2 bath). The equivalent costs 800k in the bay area and 500k in boston.Another thought is traffic. Seattle has no traffic compared to LA, chicago, nyc, boston, atlanta, dallas etc. Granted, seattle has more traffic now than 10 or 20 years ago. But by an objective measure, our traffic is fine. I used to commute 3 hours a day in jersey, my wife 4 hours a day. So i don't feel sorry for those that whine that it takes 40 minutes to get to redmond. :-)) In fact, if they would drive at 6:30am there is no traffic. In nyc, you have to be on the road by 5am to miss traffic.So hears to a great future for a great city!
Thanks again,
PatrickPatrick
Ennis :: Tue, 2003/04/15, 18:49
Comment 2.
Jon:
I don't know why every major tech area in the United States has to "apologize" for not being Silicon Valley. It is clear that there is a cluster of very smart people in the Valley, but there are some very smart people doing some amazing things in Seattle. Not just Seattle, but in some very unlikely areas. The short sided nature of those in the Valley that spend more time on 101 than they do on an airplane (it would take less time to fly than to get to work on 101) are missing some very interesting and highly intriguing ideation.Last time I looked, Microsoft was still located in Seattle. There are more, and they are all not within a 50 mile radius of Stanford.
Ed Schifman :: Wed, 2003/04/16, 14:15
Comment 3.
Jon,
We are a fund co-located in NJ and Tel Aviv. One of our companies, Prosight, is located, and thriving nicely in Portland. Our exposure to local VC's, the pool of management, and cost structure have been incredibly positive. I am convinced that, if it was located in the Valley, it would have followed the herd mentatility that has caused investors to lose multiple hundreds of millions (shall I say billions?) of dollars on hyper-scaling economically doomed initiatives. While I agree with your point that the region has all the ingredients for sustained successes, it leaves the reader with the impression that the area is suffering from an inferiority complex. Of course, there are strengths and weaknesses, but the point is that these differences should be celebrated and exploited. Entrepreneurs will choose Valley vs local VC's and that capitalistic choice will spur each to differentiate and add more value.I suspect that the Venture retrenchment you have experienced is the market rightly sizing capital to the opportunity. Doing this in a rapid fashion is a tribute to the area, not a condemnation. After all, this is what we advise portfolio companies to do; size to the opportunity.It would be great to see at next year's conference either entrepreneurs or LP's highlight why believe the NW is such a fertile ground for investors and innovation...
Charlie Federman :: Thu, 2003/04/17, 10:58
Comment 4.
Jon,
While I agree there's "bench strength" among tech entreprenuer's in the PacNW, it's time we acknowledge the importance of providing access to capital BEYOND hitech/biotech to turning the local economy around. It should be of great concern that 3 years after the bubble burst, the dominant question among VC/Private Equity managers is, "When will the tech IPO market come back?" It's as if other industries don't exist. So here are some facts that might be useful to reframing our perspectives.Hitech/biotech employs less than 20% of workers in WA State. This means 80% of workers are employed by other industries. Even looking at a broad index like the Wilshire 5000, hitech/biotech represents less than 20% of its total market capitalization.Yet, private equity investment flows are the exact opposite. In each of the last 5 years, more than 80% of all VC/Private Equity dollars flowed into hitech/biotech. It makes little economic sense to devote 80% of growth capital to industries that represent only 20% of the economy, unless the goal is to create or reflate a bubble.That investment managers continue to focus on hitech/biotech goes a long way to explain why the US has a $100 billion overhang in VC/Private Equity. It's merely an extention of a larger problem, ie, managers sitting on the sidelines waiting for the hitech/biotech IPO markets to reignite. It's like the private equity industry is locked in some kind of etheral, continuous, "Waiting for Godot" moment. What Seattle needs is a recognition that there'll be no significant upturn in our regional hitech/biotech industries until the other 80% of the economy has adequate access to capital. And as for IPO markets, it could to be a very l-o-n-g time before they get as hot as the 90's.Hitech/biotech won't be leading us out of this recession. Its probably time to refocus the considerable talent within local VC/Private Equity firms at reinvigorating the "Old Economy".
Just trying to be honest,
Glenn Gregory
Obsidian Investment Advisers, LLCGlenn
Gregory :: Mon, 2003/04/21, 23:17
Comment 5.
Jon,
Great letter. At times like these it is easy to engage in random finger pointing. We need to remember that the whole hi- tech bio-tech industry is barely 20 years old. Sure it will have its ups and downs, feast or famine periods. The key to promoting a strong Puget Sound economy is your sugestion that all members of the community continue to promote the region. Seattle has always had its ups and downs. Remmember "the last one out of town , turn out the lights", it didn't happen then it won't happen now.PeterPeter Allison :: Wed, 2003/04/23, 14:36
6. Jon,As valuable as it has been to be a deep-pocketed investor with plenty of fresh capital in the current investing environment, it will be advantageous to be one of the last-funds-standing in a region that will certianly have its fair share of entrepreneurial activity. I am bullish on Seattle myself, though I have to disagree with those that compare Seattle traffic favorably to the Bay Area.I must also disagree with the conclusion Mr. Gregory draws from his old economy thesis. While the majority of employees in Washington may be in non-high tech industries (how do you define that anymore? aren't consumer banks fairly high tech these days?), I would posit that 80% of Washington's economic growth will be the result of technological innovation. And this point is almost too obvious to mention: when we invest, we invest in prospects for growth.As for the overhang, this too shall slowly come into equillibrium. It is important to keep in mind that in a globally competitive environment, investment in intellectual property is critical to the future economic health of every community. Broadly speaking, this investment comes in many forms, including robust equity and debt markets (for both public and private investment) as well as strong support for education and the social fabric of our communities themselves. Without these structures in good health, and without continuous technological innovation and progress, I am afraid we will experience a much worse fate than some currently perceive themselves to be suffering.
Bo Daniel Brustkern
Rustic Canyon Ventures, LP
Bo Brustkern :: Thu, 2003/04/24, 11:17
Comment 7.
Jon,
In the last year I have personally screened over 350 new deals out of the Northwest. Last year Ignition Partners made 6 new investments. The bar has certainly been raised on entrepreneurs, but good deals are still getting done. In fact, the pace is ahead of the pre-bubble days before 1996. The media tends to have a very short memory and keeps comparing todays environment to the go-go days of 1999 and 2000. Sure raising capital is harder than then, but it is way easier than the early 90s or late 80s. I recently met an entrepreneur who raised money in the late 80's in an "A" round with less than a $1M pre! He raised $700K.There are a number of other things that bode well for people starting companies today. When I started Loudeye in 1997, capital was plentiful, but people were scarce. When I needed to rapidly scale my development team, I ended up buying another company who already had 28 developers since it was cheaper and faster than trying to hire them all in the open market! Today there are many quality people at all levels available. Salary and option expections are back down to earth. People are again interested in having jobs they love and hard problems to solve that keep them engaged. No-one has the expectation to get rich quick, and I think that is a good thing all around. Getting rich slowly is much more reasonable. Offics space costs have also come way down. I just subleased the originial Encoding.com building for half of what it was rented for just a year ago. An entrepreneur I recently met in Portland is paying $6 per year per sq ft, furniture and data center included! You can buy assets of failed companies for pennies on the dollar. There has never been a less expensive time to start a company.On a macro level in IT, most budgets have been frozen or have shrunk since 2000. But the useful life of technology is about 2-4 years. Much of what was bought in the boom is becoming outdated by the ongoing marching of Moore's law. People are going to have to start spending again soon. And now is the time to start that company to capitalize on the coming growth. And yes, start it here in the Northwest!
Martin Tobias
Martin Tobias :: Sat, 2003/04/26, 14:04
Comment 8.
I agree on the glass being half-full. I tried out my first startup my Junior year in college in '89. I remember the company (Aion, just a stonethrow away from Stanford campus) being called a living-dead. Pretty common then and pretty common again. I loved it though, so have been at startups ever since.The first two startups I joined were self-funded by someone without cash und and thus forced to be cashflow positive. The first one in particular was really great. Everyone was there because they loved creating something. I liked the fact that I was given way more responsibility than any "respectable" company ever would have to a young graduate. I worked at half the salary of my Stanford peers, but figured I was the luckiest guy around. And I didn't even know I could get stock options. When the founder sold the company out for $15 mil (four times revenue), he got to keep 80%. He gave all of us some stock--not as compensation or because he was required to, but because I wanted everyone to share in the positive outcome. It was really great--primarily because of the people.The late 90's were insane. While some ideas were bad, I think people are too quick to judge. I bet a fair number of the ideas currently brandished as hare-brained will eventually succeed. Partly, because the teams will be better and partly because they won't have to compete with umpteen other overfunded companies who are giving away stuff because they don't have to be profitable any time soon.I'm much happier now with most MBAs and large-company people who were just there for their "mother lode" to have fled the scene. I do think you need to be conpensated for the risk that you take, but that should never be the primary reason to do a startup.I'm seeing some entrepreneus having burned by VCs. Some personally because they wouldn't allow the company to be sold for 100's of millions and some because they ended up working with people who looked good on paper, but were not the people they enjoyed working with. So many are going back to boostrapping, so that they can choose who they work with and so that they can sell for $15 mil if they think that's the right thing. As for the Seattle area, I love it up there. However, I thought that people are not connecting the way they do in Silicon Valley and that people were trying to apply the lessons they learned when riding with Microsoft to a much smaller environment. So, for now, I'm in Silicon Valley. Yes, I'm starting a company, but since it doesn't pay the bills and I have a family to support, I'm also doing consulting for startups who are generating revenue or were able to raise money recently. It's a tricky blancing act, but I love it.
Konstantin Guericke :: Mon, 2003/04/28, 22:19
Comment 9.
I agree with your outlook on the Pacific Northwest, but more from the standpoint from where I write this comment, which is from the Philippines. After spending years in Silicon Valley, after the crash I looked for more profitable locations to run my company, and so ended up reorganizing in the Philippines. My connection back to the states is no longer centralized in the Bay Area, but up in the Seattle region. This is due to the international connections to Asia inherent in the Pacific Northwest in combination with the lower cost of doing business in that region compared to Silicon Valley (still). Start-ups concentrating on expanding horizons initially beyond the continental US would be very well advised to consider the NW. I also agree with the comment regarding non-tech investments. The game has changed, and there can no longer be a rush to IPO. The fundamentals need to be stressed, and as such, many innovative concepts can continue to come from outside the tech world - and make profitable return for investors.Having said that, I made a conscious decision to forgo any search for/acquisition of additional VC for my company... for the reason that I found the cash cost to be overly high in the wake of the crash. So from my perspective as an entrepreneur, to be successful in VC investing now it is not so much a question of where you are located, but what you are stressing to your portfolio companies and how willing you are to be involved with the company for the longer haul.
Troy Lapsys :: Tue, 2003/04/29, 17:42
Comment 10.
Jon,
Thank you for taking the time to point out the positive side of our current situation. I believe that our entrepreneurial community is willing to dig in and do the hard, but realistic, work that it will take to get to the next level. Instead of looking at the glass as "half empty" we should challenge ourselves to make a positive difference.
Michelle Gonzalez
MIT Enterprise Forum of the Northwest
Michelle Gonzalez :: Thu, 2003/05/01, 09:58
posted by Staenberg Ventures at
2:33 PM
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