It’s a good time to be an entrepreneur in Seattle, especially if you’re on the hunt for cash. Washington startups raised more than $350 million in spring 2014 alone, with a third of that cash hoovered up by four local enterprises: In April legal advice website Avvo pocketed $37.5 million. Three weeks later, Bellevue’s business software firm Smartsheet finished a $35 million round of funding. And that was followed by press releases from Igneous Systems and Extra-Hop announcing their respective $24 million and $41 million paydays. And yet very little of that money came from Seattle investors.
“As much as I’m a Seattle native and a bit of a cheerleader, I have noticed the trend,” says Rebecca Lovell, the city’s startup liaison and head of StartupSeattle. After being hired in March to the newly created position in the Office of Economic Development, she started picking apart the numbers on recent funding announcements and found that two-thirds of the investors were venture capital firms based outside of Seattle—particularly from Silicon Valley and New York City. “It was a bit of a head-scratcher.”
Lovell acknowledges that the issue is partly related to resources. “There’s just more money chasing more deals” in the valley, she says. “They take a fertilizer approach: Let’s diversify our portfolio and rely on big winners to cover the losers.” Which is the polar opposite of the -Seattle environment. “It’s very conservative here,” says Tarah Wheeler Van Vlack, who launched FizzMint, an HR automation tool, in August 2012. She’s been self-funding ever since. “If you were trying to raise a $5 million funding round in Seattle, you could use the same effort and offer the same terms in the valley and get $6 million or $7 million.”
There is an upside to that, though. Local entrepreneurs say that while angels and VCs based in other cities typically treat startups like stocks, Seattle investors are more interested in developing relationships with the companies they fund, in some cases taking on a mentorship role. And that means they won’t throw their money at just anyone. “They want to make sure that if they’re going to be in bed with you for 10 years, they enjoy your company,” says Wheeler Van Vlack.
Contrast that with venture capital firms on the East Coast that come from the investment banking world and are just playing a numbers game. “The best VCs are the ones who have been on the entrepreneurial side and made a pile of money that they want to put back into the economy,” Lovell says.
Kim Taylor just moved to Seattle in July, but she’d already started picking up on the city’s unique startup environment before taking the leap. Taylor has spent time in the Bay Area (she was a star on the Bravo reality show Start-Ups: Silicon Valley), and while living in New York she cofounded Ranku, a service that connects students with online degree programs, so she’s got a pretty decent frame of reference. And she relocated because Seattle is “a more serious city,” a place where investors are more interested in funding quality products than chasing the next fad. “San Francisco was starting to get sloppy,” she says of the city where Yo—the infamous app that allows users to text that word and that word alone to one another—managed to raise a million dollars. “I don’t want to have to convince some engineer to come work for me and not the next Snapchat clone.”
All of which made the numbers crunched by Lovell, the Seattle startup liaison, that much more curious. The city couldn’t really be turning its back on its own tech community, could it? So she kept crunching. She kept pouring what she found into spreadsheets and hammering it into bar graphs. And then something started to emerge: Local investors may not pump obscene amounts of cash into these startups, but they do fund more of them in the early stages—which is another way of saying that they take risks while outsiders swoop in later for the sure things. In January, Madrona Venture Group, Seattle’s biggest VC, led a $7.5 million funding round for SNUPI Technologies (makers of Internet--enabled home-safety sensors) and dropped another $3 million into Evoc-alize, which helps brands track customer data.
That’s not to say Lovell wouldn’t like to see more local involvement—and she’s looking at everyone made rich by Jeff Bezos. “You see a lot of money from ex-Microsoft folks, but I haven’t seen that yet from Amazon folks,” she says. “I’d like to see them get in the game.”
This article appeared in the September 2014 issue of Seattle Met.