The Changing Face of Venture Capital
[This post also appears on OVP's blog---Eds.] The University of Washington’s Computer Science and Engineering (CSE) department’s Affiliates day is one of the most fun and rewarding days of the year for me as venture investor and geek. It involves a showcase of projects and research areas by professors and students and is a festival of creativity, new ideas, and engaged smart people. It is a day my colleagues and I look forward to every year.
Last Thursday’s meeting ended with a panel on “The Changing Face of Venture Capital” moderated by UW’s Ed Lazowska, who prompted us with a series of provocative questions. On the panel with me were Greg Gottesman of Madrona Venture Group, Ron Howell of WRF Capital, Bill McAleer of Voyager Capital, and Cam Myhrvold of Ignition Partners.
One of the first topics was the impact of the recession on startups and venture capital. Most VCs expressed the opinion that money was harder to find but that if you could get funded, it was a great time to start a company because skilled people were available, cloud computing providers such as Amazon have made it possible to do with less capital, and there were fewer competitors being funded. There was recognition that it has to be done with less, given the exit markets. But if anything, Greg Gottesman said Madrona is sticking to its model and not changing given a one-year blip.
Cam Myhrvold made the point that there were a lot of entrepreneurs using Amazon Web Services and open source to quickly bootstrap companies with much less capital than prior years. My comment was that if you play at the application layer using open source and AWS, you better think hard about marketing and customer knowledge since there are few technical barriers to entry.
One topic that was raised was why should entrepreneurs go for VCs over angels, money aside. I disagreed that money could be ignored and said that the quality of money was critical in these times. The recession has meant that almost all companies have needed more cash and, given that outside funding is tough, insiders had to step up. Many investors have not stepped up, which has made all VCs more conscious of the quality of their co-investors.
Ed asked what areas were particularly attractive for Seattle, and we got a consistent set of answers. Digital media, gaming, software, and the emerging areas of IT applied to green tech and IT applied to biology are core areas of interest. Each firm had its own areas of interest—for instance, Bill McAleer liked mobile apps and the application of social networks to the enterprise as one of his areas. Bill related a story from a recent trip to NYC where the cab driver was touting his favorite iPhone app—a map of all the public bathrooms. When asked about really innovative new ideas, Greg Gottesman mentioned 3-D printers and how his son was willing to empty his bank account to get one.
At OVP, we like the investment thesis that green tech and biology are becoming more compute-intensive, and that companies that can bring a view of IT applied to these areas are particularly attractive.
My conclusion from the evening is that Seattle is a great place for innovation and has a set of dedicated VCs who want to see a vibrant, risk-taking community. Each firm had its own areas of focus, some overlapping, but all were focused on creating great companies and skilled entrepreneurs here in Seattle. I left feeling that we were lucky to have UW CSE, a great research department generating innovative ideas, and a VC community very committed to fostering growth.