Seattle Versus San Francisco: Will There Be a Brain Drain to the Bay Area?

9/15/08Follow @gthuang

A couple weeks ago, we ran a story about the relationship between Seattle startups and San Francisco Bay Area VCs. We asked, what can Seattle entrepreneurs do to attract more attention from California investors? The responses I got from the tech-business community painted an interesting and complex picture of the local investment scene—but it was just a start. The piece also generated quite a bit of feedback on Seattle versus the Bay Area, which I’d like to follow up on here. (The 49ers’ improbable 33-30 overtime win over the Seahawks yesterday does not help the Northwest cause.)

For instance, Tony Wright of Seattle-based RescueTime wrote in about his most recent fundraising efforts. “If I had it to do over again, I’m sad to say that I’d probably avoid the Seattle investor scene unless a motivated investor fell in my lap,” he commented on the post. “If you’re buying a ‘product’ like investment, it pays to go where there’s a competitive market—you’ll get a faster deal with better terms.” In his latest round, which will be announced soon, Wright says that only one of his “gold-plated collection of seed-stage investors” (out of several, presumably) is from Seattle.

That sort of feedback makes me wonder whether there is, or will be, a brain drain of entrepreneurial talent to the Bay Area. I’ve heard that seed-stage deals can be slow going in Seattle, compared to how fast Bay Area investors move to close them. This also made me wonder if startups tend to stick around in Seattle while seeking capital from elsewhere.

The answers clearly depend on the individual startups, entrepreneurs, and their experience levels. LinkedIn originally started in Seattle but moved to the Bay Area early on. Farecast, which was backed by Madrona Venture Group and several Bay Area firms, stayed in the Seattle area before getting bought by Microsoft in April. In the past couple of months, Seattle-founded DocVerse, a maker of collaborative software for documents, has moved to San Francisco after closing a $1.3 million funding round there. “Our experience was materially different from most of the perspectives you captured in your previous article,” says DocVerse co-founder Shan Sinha. (I’m intrigued to hear more soon.)

Will others follow DocVerse’s lead? At least one experienced entrepreneur thinks the local investment and recruiting scene is just fine—but he acknowledges that there’s much less competition among investors to finance companies in Seattle. “It feels to me like the climate is good,” says T.A. McCann of Seattle-based Gist, which is backed by Vulcan Capital. “There probably needs to be more direct competition [between Seattle investors]. Most VCs here have a space carved out. They could lose a deal to someone in the Valley, but probably not to someone locally.”

McCann’s bottom line is simple. “If I went to the Valley and [a VC firm] said, ‘We’ll fund you, but you’ve got to move here,’ I’d say no. I have a life in Seattle, my developers have a life in Seattle,” he says. “There’s a benefit to knowing the space, knowing how to recruit, and there’s enough good talent in town. If you’ve been here long enough, the referrals come very quick.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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  • http://www.sterlingpr.typepad.com Kevin Pedraja

    One thing that will probably prevent a real “brain drain” from happening is the relative cost of doing business in California vs. Washington. Taxes and real estate are both higher in California, as are average wages for equivalent tech jobs. For start-ups who need to go a long way on a small amount of money, those extra costs can be the difference between success and failure.