The Sky Isn’t Falling on Venture Capital in Washington State, VCs Say

9/9/08Follow @xconomy

The national economy may be limping along, and IPOs seem like a distant dream, but that doesn’t mean it’s doomsday for the people who invest in startup businesses. Two prominent local venture capitalists—Chad Waite of OVP Venture Partners in Kirkland, WA, and Matt McIlwain of Madrona Venture Group in Seattle—both said their industry is getting along fine during a panel discussion this morning at an event hosted by the Washington Technology Industry Association.

“I took a week off in May and haven’t taken a day off since. So that should give you a sense of the level of activity,” said Waite, a 20-year veteran of OVP, in his opening remarks. “It’s been very steady now for two to three years.”

McIlwain disagreed with the mostly gloomy economic dispatches coming out of the other Washington, pointing out there was 3.3 percent growth in GDP in the second quarter. Here in Washington state, McIlwain said, things are humming along with more than 40 venture deals a quarter, putting this state in the same tier with Texas, New York, and Maryland. “It’s a pretty stable environment,” he said. Washington state, he added, “has a natural geographic advantage because we are far enough away from Silicon Valley that we can think our own thoughts,” yet close enough to stay on their radar screens.

Some people might suggest it doesn’t mean much to the region because VC represents a tiny slice of the economy. WTIA’s Ken Myer offered some thoughts about the impact of venture capital that were a bit surprising to me, at least. Revenue from venture-backed companies totaled $2.1 trillion last year, adding up to about one-seventh of the gross domestic product. About 10 million people work for companies that got their start with venture capital, including Microsoft, Starbucks, and Genentech. Geographically, California is the undisputed king of VC, with 411 venture deals in the second quarter, followed by Massachusetts at 99, New York with 66, and Washington in fourth place with 44.

It’s a long shot from the bubble days, as panelist John Cook of the Seattle P-I pointed out, adding that maybe that’s a good thing for maintaining a sustainable startup environment. He said he sees reason for optimism, noting that he’s preparing stories about a couple of big venture deals in the works.

Since the storyline of “things are stable” doesn’t exactly keep people on the edge of their seats, the conversation edged toward more general advice for entrepreneurs. Here are some highlights:

—On management experience: Waite said he sits on eight or nine boards, and about half of the companies are run by second-time entrepreneurs. “I don’t have to worry about these guys every day. They have judgment and tenacity. I don’t want to run a company. If I wanted to run a company, I’d run one,” Waite says. McIlwain offered a different perspective, saying he had just finished reading a biography of John D. Rockefeller, which noted he was an inexperienced guy in a new, unproven industry when he started. “He wasn’t constrained by what happened in the past,” McIlwain says.

—On making the pitch to VCs: “Be yourself,” Waite says. “Sometimes the big fancy multimedia presentations turn me off. Simpler is better.” McIlwain said he wants to hear people talk about the burning idea that made them give up their cushy job at Google or Microsoft to run a startup. In one case, an entrepreneur (probably not a cardiovascular disease researcher) told him his diet switched to chicken nuggets and macaroni and cheese every day while he was obsessed with his new company idea. “I want to know about the insight that led you to change your life,” McIlwain says.

—On what it will take for Washington to climb the charts to approach California as a hub for venture investing. “An earthquake in the San Andreas fault,” Waite quipped. Looking years down the road, McIlwain said, “aspirationally, we could overtake Massachusetts in time. Maybe not in biotech because there’s a much deeper base of biotech and medical research there. But we should really be rooting for the Microsofts, the Amazons, the Clearwires, and the RealNetworks. The more of those companies succeed, the better it will be for startups in the region.”

By posting a comment, you agree to our terms and conditions.

  • Krassen Dimitrov

    Well, whatever Waite’s recipe is, obviously it is not working. OVP is one of the worst performing funds in the industry for the past 10 years:

    OVP V has lost 20% per year for 11 years
    OVP VI has lost 10% per year for seven years
    OVP VII has lost 25% per year for two years

    Waite and OVP like you to have the smaller “slice of the pie” so that they can take control of a company and install their incompetent cronies. As a result you not only get a smaller piece but the pie is shrinking as well.

    Here is what entrepreneurs should do: talk to their Limited Partners. Expose them and embarrass them in front of them. After all, these VC do not play with their own money; it’s the pension funds and endowment funds that OVP is wasting so recklessly.

    In any case that’s what I did, and it seemed to pay off at NanoString. They reversed on the throughput issue – as reported on this site – which now gives them a fighting shot. Hopefully it’s not too late…