Culture and lifestyle may help explain why some consider the early-stage money spigot more a trickle than a flood. Start-ups and venture firms set up shop in Seattle because it’s less expensive and less cutthroat than Silicon Valley. The amenities (including Seattle’s proximity to the Cascade Mountains and Pacific Ocean) don’t hurt either –until they do, suggested Ottinger. “There is a cycle in Silicon Valley where someone is a founder, makes a ton of money, starts a venture capital firm and invests back into the community,” he said. “In Seattle that cycle is better described as, ‘I made a lot of money, and I’m going skiing.’”
If that comment sounds glib, the numbers are less so. Seattle ranks fourth in the country in terms of venture capital investment, but at $2.96 billion, the dollar amount is small compared to the $11.89 billion in venture capital investment in Massachusetts, $14.31 billion in New York and $77.3 billion in California.
Scott Jacobson, managing director of Madrona Venture Group, a leading Seattle venture fund, takes issue with the claim that Seattle is missing the early-stage link. “That’s something of a dated perspective – that investors in Seattle are not willing to go in early,” he said.
Together with the Washington Technology Industry Association, Madrona produces a “star chart” of Seattle’s tech universe, a graphic that in 2015 included more than 600 tech firms. Jacobson also points to the city’s vibrant and expanding accelerator scene, and the rise of new venture firms such as Pioneer Square Labsand Flying Fish that are raising funds under $100 million. Madrona itself raises mainly seed and Series A capital, with funds clocking in around $300 million.
The firm raised its seventh fund last year and has invested in a handful of local Amazon spin-outs, including Pro.com and Domicile. But Jacobson agrees that Amazon employees don’t seem to be in a rush to leave. Substantial compensation packages (including stock options that have soared 2,000 percent in value over the past decade) and interesting work keep them happy.
“As big as it is, Amazon is an incredibly innovative company, and that innovative DNA makes it a very interesting place for entrepreneurial people to develop,” Jacobson said. “And so they stick around.” But if a downturn hits, or share prices go down, Jacobson said, “that could change.”
Things changed for Microsoft some years ago, and after the company entered a period of slow growth, employees weren’t making as much money on options. “Then you saw spin-out companies,” said Ottinger. But Microsoft has made a comeback in recent years, after the legacy PC-centered enterprise reinvented itself as a cloud-based software firm. It’s now a growth company, and employees are once again staying put.