3 Big Ideas from Frank Artale: Seattle’s Startup Ecosystem, VC Ground Rules, & the New Inflection Point

7/15/11Follow @curtwoodward

One of the newer venture capitalists plying his trade in Seattle isn’t really all that new. How’s that? I’m talking about Frank Artale, who joined Ignition Partners earlier this year as a managing director.

Artale’s a pretty familiar face around the Puget Sound region, having worked at Microsoft (NASDAQ: MSFT) for nearly a decade—he was one of the general managers on a little project called Windows 2000. Artale kept a home base here after leaving Redmond in 2000, but focused his professional energies toward Silicon Valley in stints as an entrepreneur, executive, and investor.

Now that he’s back in one place, Artale’s leveraging his experience and connections to target cloud computing, security, virtualization, and storage investments for the $400 million Ignition Partners IV fund. But on top of just finding good deals for the firm, Artale says he also sees the job as a chance to help build up the entrepreneurship scene here in the Northwest.

“The thing that I felt I could add the most value to was in the area of building entrepreneurship in a place wehre the startup culture was still a bit more emerging as opposed to mature. And the Valley culture is a mature one,” Artale says. We chewed over that idea and lots more in a recent chat, and these were the three big takeaways for me:

Seattle Grows Up
Having spent several years in the thick of Silicon Valley dealmaking, Artale says he can see some of the things needed for long-term success developing back here in the Puget Sound region. Chief among those factors, he says, is probably the links between big tech companies and the startup scene, with VCs often acting as the bridge-builders.

In the Bay Area, that ecosystem is well-developed, with plenty of large companies that are accustomed to partnering with (and often acquiring) innovative small companies. It’s getting better in the Seattle area, Artale says, on both ends of the equation.

“The difference now … which has always been in existence in the Valley, is that there are more people at the larger techs that have specific responsibility for outreach, both to the venture community and the companies that venture supports,” Artale says. “When you have the larger companies putting their own resources specifically on working with early stage companies and their backers, that’s a key ingredient.”

Atale says that shift is noticeable even in the past year or so, and is catching on at companies across the Northwest, from Vancouver, BC, down to Portland, OR. What’s driving that change? The increasing willingness of IT leaders in businesses of all sizes to use technology services from small, early stage companies—and big companies will always go where there’s clear customer demand.

On the entrepreneur side, Artale says the Seattle area is simply getting a fuller roster of startup veterans, including entrepreneurs who know how to lead a new company and engineers who have a few small-company experiences under their belts.

“Now, you’re seeing folks who are on their third company. They’re starting those companies with the kind of understanding of what it takes to raise money, what it takes to be successful,” Artale says. “Because we’re having more and more of that, we’re able to combine more of those sorts of people with people who are now coming out and working maybe at an early stage company for the first time.”

Investment Philosophies
Simplest things first, and probably least surprising for someone with his resume: “I like software,” Artale says. “You can be very capital-efficient, especially these days, building a software company. You can keep the company alive for a long time while it achieves its goals, and even makes some mistakes, as opposed to a company that’s going to be very capital-intensive and consume a bunch of money.”

Familiarity is another key. “Personally, I like to invest in companies that I’ve gotten to know over a period of time as opposed to something that was pitched to me,” Artale says. “If you look at the investments that I’ve sponsored so far at Ignition, these are all companies that I’ve known or otherwise had involvement with for at least a year.”

He’s talking about Ignition’s recent investments in BlueStacks, which lets Android apps run on Windows PC operating systems; ScaleXtreme, which provides online IT management software; and Bromium, a stealthy cloud-computing security startup.

“For me, it’s harder to invest in a company that I’m going to see in a 45 minute pitch and do two weeks of due diligence,” Artale says—but, he adds, that doesn’t mean quicker investments are off limits in his role at Ignition.

An IT Inflection Point
In the consumer Web world, plenty of people have pointed to heated recruiting, skyrocketing valuations, and mega-million-dollar fundraising rounds as a parallel to the pre-bust bad old days of the late 1990s. When it comes to the current big changes under way in IT infrastructure, Artale says it feels a lot more like 1993.

Around that time, the technology industry began adopting faster, more standardized networking gear—”buildings were re-wired for Ethernet”—and computer companies started adopting new standards for servers. That became the new platform, leading to better network operating systems, new data security tools, and major businesses on top of those networks, like business-scale e-mail.

Now, all that capital is moving to the “cloud” of remotely managed data centers, enabling cheap, quick, powerful computing for basically anyone. And that’s what looks a lot like the early 90s to Artale.

On one hand, that allows companies to send a horde of previously in-house database services—e-mail, customer relationship management, human resources—to an outside vendor. That won’t happen overnight, but “as a new company comes into existence, they’ll likely survey all of their choices.”

“The difference is the way enterprises will have to manage access to those things and manage compliance and governance—or at least understand how their data is backed up and protected,” he adds.

For entrepreneurs and smaller software companies, the benefits of having massive computing power at their fingertips means it’s possible to build complex technology services with a fraction of the money and time once required. Artale points to examples like Mill Valley, CA-based MessageBus, a startup that manages e-mail systems for other companies.

“Whether they’re databases or messaging infrastructures, or anything that anyone can think up, it becomes fundamentally easier for these services to be published,” Artale says. “I think you’ll be able to see applications that are built much more simply and easily because of a lot less drudgery that has to be taken on from an operations perspective.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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