Seattle-based venture capital firm Maveron has been in the news a lot this month. There have been reports about its latest stealth startup, which is a new type of e-commerce play. Another report from VentureWire said Maveron will be selling its shares in Motley Fool—a deal that will generate cash for Maveron, which led a $26.5 million financing of the online investing website in 1999. And then, just yesterday, I got a press release about Maveron expanding to San Francisco and Silicon Valley.

The VC firm, co-founded by Howard Schultz of Starbucks fame, is used to this sort of attention. But the San Francisco news was a bit confusing to me, because Maveron has been active in the Bay Area for a long time. As usual, the interesting stuff is in the follow-up. I had a chance to connect yesterday with Dan Levitan, a fellow co-founder of Maveron and the mastermind of the firm’s consumer-focused investment strategy. Besides the new San Francisco office, I also asked Levitan about the Seattle e-commerce startup his team is currently building; his outlook and themes in the consumer tech space; and his first fateful meeting with Schultz back in the early 1990s.

First, some basic stats. Maveron was founded in 1998 by Levitan and Schultz, and is best known for its early investments in eBay, drugstore.com, Shutterfly, and Cranium. Its current portfolio companies—there are 22 active around the U.S.—include Potbelly Sandwich Works, Pinkberry, LiveMocha, and Altius Education. The venture firm has about $750 million under management.

Levitan explained that opening Maveron’s San Francisco office has been a two-year process, but it doesn’t signify any shift in the firm’s geographic focus. “I don’t see this announcement as anything more than opening an office where we’ve already done business,” he said. “We’re one firm with two offices.”

The San Francisco office is headed by Amy Errett, a veteran of Olivia.com and E*Trade, who was announced as a Maveron partner last year. She is joined by new principal Ben Choi, who was previously with Storm Ventures, In-Q-Tel, and RRE Ventures. As Levitan puts it, instead of Errett flying up to Seattle four times a month, she’ll fly up three times a month (and the Seattle team will fly down the fourth week).

But Levitan emphasized that he’s looking in his own backyard for new investments as much as ever. “Seattle is an economy and region that’s very rich with groundbreaking, innovative consumer companies,” he said, pointing out obvious examples like Starbucks, Nordstrom, Amazon, and Costco. One less obvious company he mentioned was online real estate broker Redfin, which isn’t in …Next Page »

Comments (1) | Reprints | Share:        

“People say if you fail in Seattle, you’re screwed,” said Marcelo Calbucci. “If you fail in the Bay Area, you just have a badge of honor.”

We were at the TechStars reunion event in Seattle last week, listening to early-stage investors Brad Feld, Andy Sack, Steve Hall, Greg Gottesman, Shawn Broderick, and Chris Sheehan speak about entrepreneurship and the tech startup scene in their respective cities. Calbucci, the founder of Seattle 2.0 and Sampa (which folded in August), was asking the panelists about how the tolerance of failure, whether real or perceived, affects a region’s culture of innovation.

It’s a deep question, and it continues the discussion of startup cultures in different cities that I highlighted last week. It’s also part of a debate on failure that has been going on since long before I wrote about it in Xconomy last January. There seem to be two camps. Most entrepreneurs I’ve talked to feel there is a stigma associated with having a failed startup in Seattle. Most venture capitalists, not so much. But it’s a much broader issue than just Seattle. My colleague Bruce talked with a Web 2.0 startup founder in San Diego last week who said his first failure, earlier this year, “was truly a painful experience, and I’m still not over it.” And meanwhile, Brad Feld, the co-founder of TechStars and Foundry Group in Boulder, CO, had some provocative things to say about the failure aspect of Boston’s culture.

But first, Andy Sack of Seattle’s Founder’s Co-op gave his perspective on having failed at his last startup, Judy’s Book, after having had three successes prior to that. “As much as you teach entrepreneurship, as much as there’s supply of capital out there, really when push comes to shove, entrepreneurship comes from within,” he said. “I couldn’t take a job at any of the big companies. We’ve been through the tech boom of the ‘90s. We’re just coming off of a major hiccup. I’d say right now, early-stage investors in Seattle have retreated some; venture capital has retreated some, they’re focused primarily on their portfolio. That said, you [Calbucci] failed and went out and started your own thing. I failed and went out and started my own thing. Because we didn’t know any better. The entrepreneurs that don’t know any better, they just go do it again.”

Greg Gottesman of Seattle-based Madrona Venture Group is one of those VCs who says he doesn’t see failure as a black mark. “My sense in this community is, to people who matter most, I don’t think failure is a huge negative,” he said. “There are certain types of failures, like failure of integrity—that’s hard to recover from. But failure of a startup, just speaking with all my partners, that’s not a negative. We talk about that as a learning experience. It’s just another piece of the puzzle.”

So how does Seattle’s tolerance of failure differ from, say, Boston’s or Silicon Valley’s? Feld, who has been investing nationally for 15 years, said, “I actually believe that the shtick of ‘failure as a badge of honor’ is really great shtick. I’ve failed a lot. It’s hard to fail. Failure impacts a person in …Next Page »

Comments (2) | Reprints | Share:        

Kirkland, WA-based OVP Venture Partners has led a $12 million investment in San Mateo, CA-based RedSeal Systems, a security software firm. OVP managing director Mark Ashida has joined the company’s board. Existing investors Venrock, Jafco Ventures, Sutter Hill Ventures, and Leapfrog Ventures also participated in the deal, which brings RedSeal’s total funding to more than $43 million.

Comments | Reprints | Share:        

Seattle-based Voyager Capital is announcing today it has added a new venture partner—Bruce Chizen, the former chief executive of Adobe Systems (2000-2007). Chizen started in his new role this month, and he’s based in Silicon Valley, but he’s already making an impact on Northwest companies in Voyager’s portfolio.

First things first, I had to ask Chizen an obvious question: what does he think of Adobe’s $1.8 billion bid to acquire Omniture, the Web analytics firm, which was announced this week?

“It’s strategic and bold,” Chizen replied. “Now it’s all about execution. If [Adobe] can incorporate metadata into the flow, it’ll give them a competitive advantage.” He added, speaking from experience (he led Adobe’s $3.4 billion purchase of Macromedia in 2005), “Acquisitions are funny in that they’re hard to do. If an acquisition is successful, no one talks about how much they paid.”

OK, more about the actual VC news here. The addition of Chizen as a venture partner clearly strengthens Voyager Capital’s expertise and connections in the digital media industry. It’s the latest strategic hire at the venture firm, which in the past year and a half has recruited a new talent stable that includes Daniel Ahn in Silicon Valley, Diane Fraiman in Portland, and Geoff Entress in Seattle. “Voyager is increasingly a West Coast firm, with its roots in Seattle,” says Voyager co-founder and managing director Bill McAleer.

But that doesn’t mean we should expect to see more investments in California at the expense of the Northwest, McAleer says. “We’re going to stay consistent with what we’re doing,” he says. (About two-thirds of Voyager’s investments are in the Northwest, and one-third are in California.) “We’re helping our companies up here with partnering strategies and talent in the Valley. Part of what we look at is how to interconnect companies,” McAleer says.

Chizen stepped down as the CEO of Adobe (NASDAQ: ADBE) in December 2007, and stayed affiliated with the company through April 2008. He has been an adviser to Voyager since July of last year. He also serves on several boards, including Oracle (NASDAQ: ORCL), Synopsys, and Portland, OR-based Elemental Technologies, and is senior adviser to the private equity firm Permira Advisers. “What was missing for me was in the area of really working with and looking at young, cool startups with great technological differentiators. Fundamentally, what excited me about Adobe was its technology and reaching new, different, and exciting markets,” Chizen says.

He calls Voyager Capital a perfect fit—culturally, technically, and intellectually. “They really care about their companies,” Chizen says. “I think I can help them a lot. There’s a lot of deal flow in the Valley …Next Page »

Comments | Reprints | Share:        

Beneath the friendly, laid-back veneer, the Seattle tech community is a rough-and-tumble lot ready to throw down at a moment’s notice. That’s what you might surmise after the past week, anyway. And this is not necessarily a bad thing. (Though the heat wave might have had something to do with it.)

Here’s a quick update for those who missed the action:

—We’re getting pretty sick of being compared to Silicon Valley. Most of the time, we defer to the sheer number of startups, entrepreneurs, and venture firms in the Bay Area, taking solace in the quality of our talent and companies. But every once in a while, someone really stirs the pot, like UW TechTransfer’s Janis Machala did last week at a public forum on campus. She said Seattle pays a price for its laid-back, outdoors-y lifestyle, and implied that some of our entrepreneurs don’t work as hard as those in the Valley. To which many local observers, including Dave Schappell of TeachStreet, have taken offense (albeit respectfully), arguing that Seattleites work just as hard.

Silicon Valley readers apparently believe they can learn a thing or two from Seattle’s startup efforts. Case in point: Marcelo Calbucci of Sampa and Seattle 2.0 has taken considerable time and effort to blog about lessons learned from Sampa’s demise, and he’s getting a lot of readership in the Bay Area.

—And don’t even get us started on Portland, OR. We Seattleites hate to be ranked behind Portland in anything. Yeah, so they still have a pro basketball team, and a pretty good Japanese garden and bookstore, but that’s about all we are willing to concede, right? So when Entrepreneur magazine ranked Portland as one of the top cities for startups and snubbed Seattle (at least that’s how it was perceived), this meant war. Even though Gerry Langeler of OVP Venture Partners was quoted as saying Portland is “too small to have competing ventures,” and its entrepreneurs tend to lack a “killer instinct.”

TechFlash went on the offensive, calling out Portland for its relative dearth of venture capital and venture-backed public companies. The Oregonian and Silicon Florist came to Portland’s defense; blogger Rick Turoczy pointed out that Portland entrepreneurship is incredibly diverse, with startups not just in software and cleantech, but in food and drink, clothing, books, comics, and other creative arts. In short, Portland is a collaborative, entrepreneur-friendly town, and its culture is separate from Seattle’s. (OK, it’s not quite Red Sox-Yankees blasting each other in the tabloids, but you get the idea.)

—I say we settle all this bad blood with a Battle of the Tech Bands: Seattle Vs. All Comers. Xconomy CEO and editor-in-chief Bob Buderi has already dropped hints that he wants to stage a Boston vs. Seattle band battle. Judging from the quality and tremendous energy of the bands we saw at the Pyramid Alehouse last week, it could shape up to be quite an epic. (See more photos from the Battle and WTIA party here, courtesy of Kevin Pedraja.)

I don’t know about you, but my money’s on this guy (left), Peter Dixon from the metal band Juda’s Wake (representing Microsoft), winning it all… You want a piece of Seattle? Come and get it.

Comments (6) | Reprints | Share:        

Yes, I’m taking the day off and letting other people (the actual participants) tell you what they took away from the inspiring tech events in Seattle last night. I asked panelist Jonathan Sposato, the CEO of Seattle-based Picnik, for his thoughts on the Naked Truth spectacle at Olympic Sculpture Park, which was organized by Glenn Kelman of Redfin, along with Madrona Venture Group, Fenwick & West, and Square 1 Bank. Below are Sposato’s comments and photos. (Also check out Kelman’s roundup of the event.)

Jonathan Sposato writes:

When I came upon the premises I was immediately struck by three observations. The common theme here is that as a place to do business, Seattle has finally arrived.

1. The Olympic Sculpture Park is an absolutely gorgeous venue for this. Even as I was on stage my eyes couldn’t help but drift off towards the jaw-droppingly stunning landscapes. The designed environment really rivals anything in LA (the Getty) or NYC (Metropolitan Museum of Art’s rooftop garden).

2. That the startup community in Seattle is a numerous and dynamic crowd. I heard well over 500 people attended and from the many great questions asked, people seemed genuinely into the details of how companies make money in today’s economy.

.

Greg Gottesman of Madrona Venture Group entertains the crowd as emcee of the event in the outdoor amphitheatre of Olympic Sculpture Park

3. Excluding myself; the diversity and caliber of the panelists was super high. They included Mike Arrington of TechCrunch, Fred Vogelstein of Wired, Damon Darlin of the New York Times, Fred Wilson of Union Square Partners, Glenn Kelman of Redfin, Ethan Lowry of Urbanspoon, and Brad Jefferson of Animoto. All brought interesting perspectives I found enriching.

Overall the event was a lot of fun, and I personally came away heartened by the fact that there is indeed a clear cultural shift towards revenue as a primary focus for Seattle’s startup community. I don’t recall hearing a single question about creating a startup to merely maximize for a speedy exit.

I’ve done many of these kinds of panels before and there are often several challenges for the participants. The hardest challenge is that there is simply no “one size fits all” answer to people’s questions. For example, someone in the audience asked about how one should position an early stage startup …Next Page »

Comments (1) | Reprints | Share:        

Seattle, the Washington D.C. area, and Orange County have moved up in Milken Institute’s ranking of top high-tech center areas in North America. From 2003 to 2007, Seattle passed Boston and became America’s second-ranking high-tech metro area. San Diego is at seventh place. (These are Xconomy’s network cities.) The number one spot belongs to Silicon Valley, which “continues to lead all other metropolitan regions in North America in the breadth and scope of economic activity it creates through technological innovation,” according to the study.

According to Milken Institute, the Top Ten North America high-tech centers are:

2007 Ranking (2003 Ranking) Metro Area Total High Tech Score

1 (1) San Jose-Sunnyvale-Santa Clara, CA 100.0
2 (3) Seattle-Bellevue-Everett, WA 46.4
3 (2) Cambridge-Newton-Framingham, MA 45.2
4 (5) Washington-Arlington-Alexandria, DC-VA-MD-WV 41.8
5 (4) Los Angeles-Long Beach-Glendale, CA 40.2
6 (6) Dallas-Plano-Irving, TX 21.8
7 (7) San Diego-Carlsbad-San Marcos, CA 19.3
8 (11) Santa Ana-Anaheim-Irvine, CA 17.7
9 (9) New York-White Plains-Wayne, NY-NJ 16.8
10 (8) San Francisco-San Mateo-Redwood City, CA 16.1

The study was done with 2007 benchmarking data. The report, called “North America’s High-Tech Economy: The Geography of Knowledge-Based Industries,” was presented by Milken Institute director Ross DeVol at the 2009 IEDC Technology-Led Economic Development Conference on Tuesday.

Metro areas were ranked by “their ability to grow and sustain thriving high-tech industries.” The study compares wages and employment in the metropolitan areas, and adds a location quotient, which measures the concentration of high-tech employment or wages in the area.

In the separate Life Sciences Small Business Vitality Index, the Top Five ranking was 1. Greater Los Angeles 2. Greater San Francisco 3. San Diego (tie) 3. Boston (tie) 5. Greater Raleigh-Durham, according to DeVol’s presentation.

Comments (1) | Reprints | Share:        

The X Factor, which debuted last week without yet having a name, is a mostly weekly column featuring conversations with local innovators, entrepreneurs, and investors.

It’s a legendary story of doom here in Boston (folks around here kind of like gloomy stories)—how the local VCs passed on this idea called Facebook, the kids from Harvard moved west, and…the friggin’ Valley beat us again. It’s safe to say this story is trotted out dozens of times each year to show how Boston VCs don’t take risks, don’t do early stage, don’t understand consumer Internet businesses. In short, it’s the poster child for how New England missed the social media revolution.

But let me say here and now that this hackneyed story is passé, as old and behind the times as analog dialup.

I’ve felt this way for some time, but it was driven home to me during the recent Twitter craze. For one thing, although Twitter is based in San Francisco, its first venture investors were from the East Coast—and Bijan Sabet, a general partner at Boston-based Spark Capital, is nicely perched on its board.

But the presence of Boston-based VCs on the social Internet and new media scene hardly ends with Twitter. Depending on how you define the field, you can find Boston VCs behind a host of such investments, both in East Coast firms like Eons and Hunch (General Catalyst), and in West Coast companies such as social news site Digg (Highland led the Series C round last fall) or Metacafe (also Highland), and even Facebook (Greylock Partners, albeit out of its San Mateo office with partner David Sze, who also invested in Digg and LinkedIn). And that’s a quickly culled, very short list.

Among local firms, Spark, Polaris Venture Partners, and (to a slightly lesser extent) General Catalyst Partners, which has just brought in Facebook co-founder Chris Hughes as entrepreneur-in-residence, are leading the way in social media. I profiled Hughes in his new role at GC in last week’s debut column. So this week I am going to look at Spark and Polaris (I promise Web/media investments are not the focus of this column—I just want to get us beyond this Facebook meme once and for all). Between them, the two have amassed an array of new media investments that run from tweeting to blogging to Internet TV. (See my still-incomplete lists at the end of this article.)

The two most prominent social media investments by these firms are Twitter, in Spark’s case, and, for Polaris, Automattic (the company behind WordPress, the leading blogging platform). So I sought out the partners who made these investments—Sabet and Polaris general partner Mike Hirshland—for their take on my premise that it’s time to put the Boston-Facebook story behind us. I also asked them how their social media/consumer Internet deals came about, where they think Boston stands now in this arena, and whether New England could ever hope to compete with California in grooming social media companies (there is some reason for optimism on this front—read on).

Here’s my report.

Both Sabet and Hirshland agree that the center of gravity for social media companies is clearly on the West Coast—no surprise there—and tell how it takes a concentrated effort on …Next Page »

Comments (4) | Reprints | Share:        

In January, Paul Graham announced that Y Combinator would no longer operate in the summers out of Cambridge, MA, but instead would stay year round in its other home of Mountain View, CA. The reason he put forth was the impending birth of his new child and the decision that California was the better place to raise his child.

Today, though, Graham divulged another factor—that Y Combinator has been negotiating since December with legendary Silicon Valley venture firm Sequoia Capital for an infusion of capital that will allow it to invest in more startups than ever. All told, Sequoia and a group of prominent angel investors are putting $2 million into Y Combinator to allow it to boost the number of companies it backs by some 50 percent—from about 40 per year to 60. As Graham explains on his website, this expansion makes more sense if Y Combinator is in California: “It’s easier to expand in Silicon Valley, because the startup community is so much larger here,” he wrote.

To me, the interesting part of the announcement wasn’t the added insight into why Y Combinator left Boston—it was Graham’s view of the recession. As he also wrote on his site: “Y Combinator is celebrating the recession by expanding. We’re so convinced recessions are good times to invest in startups that we’re increasing the number we fund…”

And as he added in an e-mail to me: “We have a hunch 2009 will later be seen as a turning point for startups, in the sense that an unusually large number of good ones got started during it. There’s a lot of evidence things are changing. Founders are still founding, and investors are still investing– much more than either did in the aftermath of the Bubble, even though the actual state of the economy is so much worse.

“We’re hoping that by expanding YC when the rest of the world is running for cover, we’ll be able to send a message to would-be founders to go ahead and do it. And of course fund a significant fraction of these new startups.”

This is a great attitude to have during a recession—and more people should have it. It comes from having confidence in what you are about. At Xconomy, we see this same attitude in a fairly large fraction of the companies we deal with—off the top of my head, I would say maybe 20 percent. They have the attitude that there is more to be gained than lost during hard times, and that innovation will be the way out of the recession. They want to take an active part in that transformation—growing their business and separating from the competition in the process.

In more classic psychological terms, it’s a desire for success outweighing a fear of failure. Y Combinator won’t be here in Boston to impart that lesson directly, but entrepreneurs and big companies alike should heed the message.

Comments (3) | Reprints | Share:        

For entrepreneurs and investors alike, it was a sad day back in January, when Y Combinator founder Paul Graham announced he would stay in Silicon Valley year round and give up splitting his startup incubation activities between Mountain View and Cambridge, MA, where Y Combinator has traditionally held forth each summer. On his website, Graham explained that the change had “nothing to do with startups,” but that he had decided California was the best place to raise his about-to-be-born child. That didn’t stop him from a candid assessment of the Boston innovation scene, however. “Boston just doesn’t have the startup culture that the Valley does,” Graham wrote. “It has more startup culture than anywhere else, but the gap between number 1 and number 2 is huge.”

Since that time, I’m happy to report, Graham’s wife Jessica Livingston (a Y Combinator partner) has given birth to a healthy son, George. And Graham himself is back at work, at least to the point that he hosted an angel investor conference last week. He also took time to answer some questions I had e-mailed him earlier, asking for a more detailed view on the differences between the New England and Silicon Valley innovation cultures. As you will see, he cleverly outmaneuvered me on my last question, about raising kids to be themselves and not to constantly compare themselves with others. But far more important than that, his answers hold some hard truths for Boston area investors and students. He called Cambridge “the intellectual capital of the world,” brimming with ideas. But when it came to Internet investing, entrepreneurship, and even the mindset of students, well, that was another story.

So here are the questions, and Graham’s e-mailed answers, unedited except for clarifying questions, correcting minor typos, and the like. “Sorry if these answers are rather long,” Graham writes. “These are questions I’ve thought a lot about.”

Xconomy: You mentioned in your post that there was a vast difference between No. 1 (Silicon Valley) and No. 2 (Boston). Can you describe some of the specifics behind this observation–how so, why so?

Paul Graham: The biggest difference between Boston and Silicon Valley is the way
startup culture pervades the Valley. The Valley is for startups what LA is for movies. It’s the main thing people care about here. Boston is for startups what New York is for movies. People do make some movies there, but it’s not the city’s main focus.

A lot of other things follow from this. The startup community is much larger in the Valley, large enough that it makes a qualitative difference. Among other things, this makes it much easier for us to run YC [Y Combinator] here. The 4 YC partners aren’t the only ones who advise the startups; we also bring in all kinds of experts from the community to advise them; and it is much easier for us to do this in Silicon Valley because that’s where most of the experts are. When we were in the summer in Boston we were always trying to talk people from the Valley into visiting Boston for a vacation. We managed to talk Paul Buchheit into it. And fortunately Mitch Kapor sometimes comes to Boston in the summer, so we were able to get him. But it was always a stretch.

Another difference is that because the Valley cares so much about startups, people here are always half a step ahead. All the lawyers know what the latest standard terms are for various types of deals. The investors are less frightened by new ideas, because the ideas are less new to them. The founders feel less lonely, because there are three other groups of guys in the same building starting startups.

I love Boston as a town. If I didn’t have kids I’d rather live in Cambridge than anywhere else. Cambridge is the intellectual capital of the world. Really. In fact, a large part of the reason Boston is weak in startups is probably that it’s good at other things. The focus of Boston is ideas, and it seems hard for a city to have two foci.

X: Do you think Silicon Valley’s advantage is more true for the Web-based sector you focus on? Are there areas, perhaps life sciences or medical devices, where Boston might be better for startups?

PG: Boston may well be a better place for biotech and medical startups. Or not; I have no idea. That is a completely different world from the one YC operates in. There’s no room for seed firms there, because the startups are so expensive to start.

X: Even when it comes to Internet startups, are there some things Boston investors or entrepreneurs are better at, or are strong at—maybe more conservative management, say?

PG: Honestly, nothing comes to mind. Occam’s razor says the reason Boston founders …Next Page »

Comments (21) | Reprints | Share:        

If Silicon Valley didn’t exist, Boston would have to invent it in order to have someplace to feel inferior to.

That’s the thought that occurred to me when I read an article in the Boston Globe last week about the Information Technology Collaborative. This new posse of industry, government, and academic leaders met in Cambridge recently to discuss the best ways to publicize the information technology sector in Massachusetts. The idea is to recapture some of the luster that Route 128 used to enjoy as the East Coast’s answer to Silicon Valley. The group tossed around new brand names for the state, such as “The Innovation Hub,” but rather than settling on any single message, it decided to commission a $150,000 study to demonstrate how the infotech sector contributes to the Massachusetts economy.

Here at Xconomy, we haven’t gotten directly involved in these kinds of discussions and studies. Nor have we given them much ink. It’s not because we don’t care—on the contrary, our mission is all about chronicling the innovation ecosystems in and around our home cities (which also include San Diego and Seattle). Rather, it’s because we’re usually too busy writing about actual innovators at actual companies—both the successes they’ve achieved and the challenges they face.

Boston’s problem is not a lack of tech entrepreneurship. (If you don’t believe me, check out the 1,700 stories we’ve published on our Boston site alone since our founding 20 months ago.) Indeed, there’s so much amazing innovation going on in Massachusetts already that it seems superfluous to worry about better marketing slogans or how much mental real estate Boston occupies relative to Silicon Valley. It would be far better for economic growth in the state if public-private initiatives like the Information Technology Collaborative focused on a few substantive policy reforms targeting the all-too-numerous obstacles to prosperity for local businesses, technology professionals, and entrepreneurs.

Don’t get me wrong: it’s important to show the outside world, especially businesses considering locating in Massachusetts, that the state has an innovation-friendly government. But elected officials are already doing a pretty good job of that—witness Governor Deval Patrick’s recent tour of the Cambridge Innovation Center and his West Coast trade mission, and Boston Mayor Tom Menino’s creation this week of Boston World Partnerships, a group that hopes to use online social-networking tools to play up the value of doing business in Boston.

So instead of commissioning more studies and devising advertising campaigns to help people “discover” Massachusetts, let’s take a closer look at local problems we could fix and local success stories that could be emulated or amplified. I’m not a policy expert, and other observers could probably come up with a more trenchant or realistic list. But here are just five of the ideas officials could choose from:

1. Clone MIT inventions like the Deshpande Center at other universities in Massachusetts. We probably didn’t need one more report to tell us this, but MIT’s impact on the global economy, via companies founded by its alumni, is gigantic, amounting to some $2 trillion a year, according to a Kauffman Foundation study released last week. The report attributed much of MIT’s success at churning out successful graduates to a well-developed “entrepreneurial ecosystem” in which the institute, the local technology and venture-capital communities, and students themselves all assume key roles.

Kauffman vice president Lesa Mitchell told me the foundation supported the study mainly because it needed to put more data behind its campaign to nurture similar ecosystems at other schools. The foundation just gave the University of Kansas a major grant to set up an organization modeled on the Deshpande Center for Technological Innovation, which matches MIT innovators with business mentors and provides seed funding to get ideas from the lab bench to the prototype stage.

But we need more Deshpande Centers right here. Schools like Babson College, Northeastern, Boston University, and the University of Massachusetts have plenty of innovative faculty and students who could benefit from equal access to experienced mentors and the venture community. Unfortunately, not every school has a wealthy and public-spirited alumnus like Desh Deshpande, who founded Sycamore Networks, willing to pony up the cash needed for an array of seed grants. This is where the state should step in—either with direct grants to schools, or by funneling money through the state’s ample array of quasi-public technology advocacy agencies, like the Massachusetts Technology Leadership Council, the Massachusetts Technology Transfer Center, the Massachusetts Technology Collaborative, and the Massachusetts Technology Development Corporation.

2. Upgrade Boston’s transportation infrastructure to make commuting easier. One obvious project—and an expensive one, though it’s exactly the kind of infrastructure investment that the Obama Administration says it wants to make to put people back to work—would be to add a second set of train tracks to the MBTA’s Fitchburg-South Acton line. Because there’s only a single track west of Acton, there aren’t enough trains to get professionals who live in Boston out to their employers’ offices along the I-495 corridor in the morning, or to bring them home in the evening. If you live in Boston and you work at IBM’s new facilities in Westford and Littleton, for example, the earliest you can get to the office is after 9:42 a.m., when the first outbound train arrives at Littleton/I-495. That’s a business-unfriendly transportation policy if I ever heard of one. The fact is, so many people make the “reverse commute” from the city to the suburbs today that it’s no longer reverse.

And while we’re at it, how about getting serious about fixing the 103-year-old Longfellow Bridge, which, as anyone can see, is a rusting hulk? The Department of Conservation and Recreation recently removed lane restrictions that were in place during a six-month, $12.5 million emergency repair project, but those measures were merely palliative. The disruption to business in both Boston and Cambridge if …Next Page »

Comments (16) | Comments (2) | Reprints | Share:        

Want to know who’s hiring the top young business talent around town? Just ask Saleem Hussain, an MBA student from Boston. In a brutal market for tech industry jobs, he gave me a fresh perspective on the next-generation talent pool and where it’s headed, in terms of both big companies and startups.

Hussain is a first-year MBA student at MIT’s Sloan School of Management in Cambridge, MA. He is one of the organizers of a 16-student Sloan contingent that made a “tech trek” to Seattle last week, on Thursday and Friday. It’s part of an annual program that takes 150 Sloan MBA students to companies in Seattle, Silicon Valley, and the Boston area to make job and internship contacts and learn about the respective markets.

In the Seattle area, the group visited Amazon, Microsoft, Expedia, Adobe, Starbucks, and Digeo. The students met with recruiters and executives to ask about business challenges the companies are facing, and to learn what MBAs need to do to land jobs in the current market. “As far as internships go, there are lots of opportunities at big companies,” says Hussain.

Despite the economy, he says, Amazon and Microsoft “seem to be really hiring in full swing” on the MIT campus. Adobe has a lot of openings in Silicon Valley, he adds, but not as many in Seattle. Interestingly, Google and Yahoo usually host the Sloan students (in Silicon Valley), but did not this year. “A lot of companies are delaying,” says Hussain. “They’ve held back interviews, putting hiring on hold.”

I also asked Hussain about Sloan’s contacts with Seattle-area startups. If there’s one hiring issue I hear about in the innovation community, it’s the relative dearth of top management, sales, and business development talent—so tapping programs like Sloan’s seems like an obvious way to address the matter. The Sloan tech trek focuses on bigger companies that tend to hire on campus, but Hussain says organizers would embrace meetings with startups as well. “In Boston, we have a lot more access to small companies and strategy consulting firms, because of neighbor relationships,” he says.

As for broader impressions, some in the Sloan group were expecting a wary market for new jobs and internships, given tightening budgets and the prospect of layoffs seemingly around every corner. But the Seattle companies were very receptive, Hussain says. “They seemed surprisingly welcoming in talking to MBA students.” As for any wariness or uncertainty (about internships anyway), he says, “we didn’t see any of that.”

“A lot of people in business school are excited about coming out in this economy,” Hussain says. “For companies, it’s very pivotal for them. It’s such an important time to be working at these companies. That’s what makes it so exciting, and that’s what drives our visits.”

Comments (2) | Reprints | Share:        

Erik Benson is a quantum particle. OK, that’s the only metaphor I can think of to explain how he can be in so many places at once. The managing director of Voyager Capital is based in Seattle, but his orbit also includes Portland, OR, Silicon Valley, and San Diego. From what I can tell, he’s one of the most active (and connected) venture capitalists on the West Coast.

Which fits the Voyager Capital model pretty well, as I reported on a few months ago. Benson, who has been with Voyager since 1998, focuses on investments in software and digital media. He serves on the boards of Portland companies AboutUs, Elemental Technologies, and Kryptiq, as well as Seattle-based Trailfire and San Diego’s Covario. He was previously on the board of CapitalStream, which was acquired by HCL Technologies for $40 million last February. And back in 1999, he sourced Voyager’s investment in aQuantive, which was bought by Microsoft for $6.4 billion in 2007.

Last week, during the holidays, I had a chance to meet with Benson at his Seattle office (”money never sleeps,” he says). So I wanted to share a few of his keener insights on startups and the venture world here.

Heading into the new year, a lot of people have been talking about the future of venture capital in pessimistic tones. “2009 will be a tough year,” Benson admits. But he points to a couple of areas that he thinks will do well: health care and online marketing, particularly search engine marketing.

I asked Benson whether VCs will be focusing on their existing portfolio companies and later-stage deals at the expense of new startups. To Benson, the key issue is being profitable—the companies that make money will always be the most attractive. “Is that later-stage? Not necessarily,” he says. Entrepreneurs and investors will do fine, he explains, “if you stick to the fundamentals of what makes a great company: an entrepreneur who has done it before; a sound business model; great technology; differentiation on the technology or business model, or both; getting to revenue and cash flow break-even quickly.”

He certainly makes it sound simple—if not easy. “My goal in the Northwest is to invest in entrepreneurs who’ve done it at least once before,” Benson says. “And maybe they’ve failed two out of four times.” According to Benson—and this was interesting to hear—this is not the mainstream view of failure around here. “In Seattle, it’s like a black mark if you fail,” he says. That’s as opposed to some other places, like Silicon Valley or Boston, where failure is a “badge of honor” (as long as it’s not every time, of course).

That was the most surprising thing Benson said in our meeting. But I can see what he means. It will be interesting to hear what other investors and entrepreneurs have to say. Is the Seattle innovation community intolerant of failure, and if so, what can be done about it?

In any case, it sounds like this year will be business as usual for Voyager Capital, mainly because great tech ideas and startup talent aren’t going away anytime soon. “You’ll see an investment per quarter,” Benson says. “The best entrepreneurs don’t go back to work for Microsoft or Intel.”

Comments (1) | Reprints | Share:        

BlueKai, an online-marketing startup in Bellevue, WA, has nailed down one of the bigger tech venture deals of the past few months. The company is announcing today it has closed a $10.5 million Series B investment led by Battery Ventures, based in Waltham, MA, and Menlo Park, CA. The round also includes returning investor Redpoint Ventures.

The company’s name with the Hawaiian suffix (”kai” means ocean) is inspired in part by the bestselling business book Blue Ocean Strategy, which urges businesspeople to create a new market or “blue ocean” rather than fight it out with competitors in established markets. BlueKai seems to be applying this idea to online advertising, creating a completely new way for businesses to reach customers.

I spoke with BlueKai CEO Omar Tawakol to get the story behind today’s deal. Tawakol, an MIT and Stanford University alum, is a veteran of Seattle-based Medio Systems and Bellevue-based Revenue Science. He started BlueKai in December 2007 with the idea of creating a huge database of online users’ preferences and intentions. The company provides data on users’ Web-browsing behavior to marketers, advertising networks, and publishers, and it collects a percentage of each ensuing transaction.

What makes BlueKai different from other related companies is its notion of “data exchange,” and the fact that it separates user data from everything else. A travel site, for instance, may sign up with BlueKai to provide anonymous user data. Publishers, airline marketers, and ad networks can then bid for the right to its “cookies”—snippets of code that tell where a user has been and what their preferences are—so as to more effectively target ads. “We’ve aggregated very high-value data at massive scale,” says Tawakol. “People pay for the data, instead of revenue sharing. That encourages big sellers, it gives them a revenue option that’s safe.”

Back in March, BlueKai closed a $3.2 million Series A round led by Redpoint. As Tawakol explains, the original plan was to focus on one “vertical” space—but the company got up and running in the travel, retail, and automotive sectors, ahead of schedule. “Our goal was to validate the concept in one vertical,” he says. “As it approached October, we had three verticals up with huge sellers, and a growing buyer base. So we thought, this is the right time to go for Series B…Our strategy was to keep our relationships with VCs, and we kept our contacts open.”

It seems to have paid off. Besides the infusion of capital, BlueKai gains the online-media expertise of Battery Ventures. Satya Patel, a Battery principal based in Silicon Valley, is joining the BlueKai board. Patel has previous experience as a product manager at Google and DoubleClick.

Tawakol isn’t naming names, but so far, BlueKai has signed up more than 20 large retailers, half of the top 20 ad networks, and several top travel search engines. He says the new funds will be used for “more investment in the product” and sales teams—to do things like add new categories and get more visibility. There will be modest growth in the staff, he says, which currently numbers 13.

I asked Tawakol whether consumers have to buy into the whole concept in order for BlueKai to take off. He emphasized that BlueKai is a business-to-business operation, and that its revenues are growing independent of any consumer push. But he acknowledged the privacy issue, pointing out that the company lets consumers opt out of having their data traded online, as well as letting you “see exactly what data is known about you by marketers” through its BlueKai Registry program.

As Tawakol points out, “If we don’t raise the bar and be more open with consumers, there could be FTC [Federal Trade Commission] backlash.” He adds that it’s important to be completely transparent about what is being done with user information.

All that said, Tawakol envisions a day, perhaps five to seven years from now, when Internet users will receive the equivalent of mileage points for their own data, and be able to trade them for goods and services. People could then manage their product preferences and other information, he says. “We’re creating an economy for data.”

Comments | Reprints | Share:        

Seattle-based DotNetNuke, an open-source Web applications company, announced it has raised a Series A financing round from Silicon Valley venture firms August Capital and Sierra Ventures. Financial terms of the deal were not disclosed. DotNetNuke provides a software framework for creating and managing interactive Web and intranet sites using Microsoft’s technology platform.

Comments | Reprints | Share:        

Updated Nov. 24 with corrections from Mike Crill: Last Thursday, the Seattle-based Alliance of Angels hosted a panel discussion on “managing through an economic downturn,” otherwise known as “Downturnapalooza.” The panelists were Eric Best of Seattle-based e-commerce firm Mercent, Mike Crill of Bellevue, WA-based consulting company Atlas Accelerator, and Rob Arnold of Seattle-based bio-software firm Geospiza. Moderating the panel was our very own David Caffey, Xconomy’s West Coast head of business development.

Just a few highlights here, courtesy of Rebecca Lovell and Vandan Parikh from Alliance of Angels. I’m mostly paraphrasing the speakers, as I wasn’t present:

—Web 2.0 startups must adapt: Crill said that, of the four Web 2.0 companies Atlas Accelerator has in the hopper (out of more than 50 investments from the past three years), two changed to business-to-business models and are doing well. Another is struggling, and only one might survive with its initial strategy.

—Economic reality check: Arnold said that if you had a good business model before the downturn, you’ll still have a good model after, though it might take longer. The flip side, as Crill pointed out, is that “if you sucked before, you’re going to suck after.”

—Why Silicon Valley seems gloomier than Seattle: Crill said that Bay Area VCs had to tell their portfolio companies that the good times are over, whereas for angel-backed startups such as those in Seattle, there was always a different attitude, one of less exuberance.

—On funding expectations: Unless you’re building a $50 million-plus business, don’t bother with VCs, said Crill. The other panelists put the figure at $100 million.

—Advice to entrepreneurs: Best said you shouldn’t raise money on just a business plan, you have to have a product; also, look out for the competition’s customers, as the downturn might be an opportunity to grab some new business. Crill emphasized focusing on getting to cashflow break-even—don’t build your business on just getting to the next day. And don’t spend money now on new product development, “sell the crap out of what’s in the market already.” Arnold advised over-communicating with your investors, and not to think the downturn is going away anytime soon.

On Friday, Rebecca Lovell gave me a bit of angel-investor perspective on the current climate. “Experienced angels and VCs are focusing on the horses they’ve already backed,” she says. “We all recognize exits are taking longer, and people are buckling down in the next year. More and more attention and money are being sifted towards companies already in our portfolio. There’s a higher bar for a brand new opportunity…VCs aren’t even going to look at you unless you’ve got $5 million in revenue.”

For investors, this could mean special opportunities to get in on attractive deals. “We’re seeing deals this month we never would have seen before,” says Lovell. “Companies are coming to us with much more attractive valuations—they’re much further along than we used to see. Also, companies with revenues or intellectual property are not getting debt financed…We’re getting a crack at those deals we might not get in a different environment.”

Comments (5) | Reprints | Share:        

The venture-capital numbers for the U.S. are out for the third quarter of 2008, and they don’t quite reflect the turmoil in the broader financial markets—at least not yet. Total venture investment in U.S. companies in Q3 amounted to $7.1 billion in 907 deals, which is down 7 percent from the second quarter of this year, when there was $7.7 billion invested in 1033 deals. The bright spots were energy and biotech deals, while there could be real trouble brewing for certain types of Internet-startup deals and capital-intensive tech operations like telecommunications and semiconductor companies.

That’s the word from a quarterly report by the MoneyTree division of PricewaterhouseCoopers and the National Venture Capital Association, based on data from Thomson Reuters. Dow Jones VentureSource also released its Q3 venture-capital figures this weekend, and they show the same 7 percent drop and grossly similar trends. Namely, deal activity is at a three-year low. Energy is up, information technology and the Web are down, and health care, biotech, and pharmaceuticals are fairly flat.

(To see the Top 10 Deals list for the nation for Q3, read on or click here to go straight to page 2.)

Sector Shakeout?

According to the MoneyTree report, biotech was the top industry sector, with $1.35 billion invested in 114 deals, a 20 percent increase over Q2 of this year. This just barely edged out the software sector, which remained strong with $1.34 billion invested in 214 companies. The fast-rising cleantech sector (defined as alternative energy, pollution and recycling, power supplies, and conservation) saw $1 billion go into 73 deals, up 13 percent over last quarter.

Potential trouble spots include “Internet-specific” companies, which received $1.1 billion in 194 deals —still a large number, but a 36 percent drop over Q2. The telecom industry saw only $323 million go into 45 deals, its lowest investment level since Q3 of 1997. And the semiconductor industry saw $396 million invested in 50 deals—fairly slow, but a 7 percent increase over the previous quarter. More broadly, in terms of overall deal stages, there were 259 first-time deals, which was down 12 percent from Q2, possibly reflecting a future trend towards fewer early-stage deals, as exit markets are all but closed.

Regional Mixed Bag

No surprise to anyone, Silicon Valley topped the deal list, with $2.77 billion put into 292 investments, down 11 percent from Q2. Investments in the New England region stayed reasonably strong in the third quarter as well, as the area saw $834.1 million poured into 117 deals. That was down only 2.3 percent from the second quarter, in which $853.8 million was invested in 123 deals. Similarly, third-place Los Angeles/Orange County rang up $572.5 million in 54 venture deals, down only slightly from the $593.8 million from the previous period.

It got worse both north and south of LA. Venture investments in San Diego in the third quarter fell to just $178.4 million (22 deals), a 52 percent tanking from Q2 and the lowest quarterly tally for the region since the first quarter of 2005. The picture in the Northwest was also fairly bleak, as venture investment sank to $294.9 million, down some 16 percent from $349.3 million in Q2.

On the international front, U.S.-based venture capitalists invested $526 million into 51 Q3 deals in China, down slightly from Q2 ($574 million in 52 deals). Meanwhile, investment into India by U.S. venture firms fell 43 percent to $271 million in 28 deals (compared to $473 million in 40 deals in Q2). On the flip side, investors in Europe and Asia have been playing a greater role in financings of U.S. companies, says venture capitalist Jim Healy of Sofinnova Ventures.

Outcome Uncertain (but the Trend Is Certainly Down)

The question on everyone’s mind is, where is this heading? “While overall venture investing …Next Page »

Comments (1) | Reprints | Share:        

Bill McAleer and Enrique Godreau remind me of an old couple. They’ve been through the ups and downs together. They’ve raised three children (OK, venture funds) in the past 10 years. They even sometimes finish each other’s sentences. And together they’ve built Voyager Capital into one of the most forward-looking venture firms in town.

First, some vital stats. Voyager Capital, based in downtown Seattle, has some $370 million under management. It raised its funds in 1998, 2000, and 2007. It does primarily early-stage deals across three main tech sectors: software and services, wireless, and digital media (including e-commerce, advertising, and marketing). It has a satellite office in Menlo Park, CA, and just opened a branch in Portland, OR, last month. Earlier this month, Voyager led an $8 million Series B investment in Los Gatos, CA-based Nusym, which makes software for verifying electronic designs.

I had a chance to sit down with McAleer and Godreau last week to talk about Voyager’s strategy and how it fits in with important trends in the tech industry. They discussed some of their portfolio companies, but they also expounded on the broader theme of “connected computing” (sometimes called ubiquitous computing) and how the Seattle area is uniquely positioned as a tech-business center. They also touched on the effects of the current financial crisis on investment strategy, and how they view the broader future of venture capital.

When McAleer and Godreau co-founded Voyager Capital in Seattle back in 1997, the tech world was a different place. Microsoft still ruled in software. The Web was just taking off, and Google didn’t exist yet. Amazon.com was just two years old. McAleer had come from Seattle-based Aldus (inventor of PageMaker) with a background in multimedia, and had his own firm for three years working with early-stage companies. Godreau had come from Gartner Group and Adobe by way of Xerox PARC; he was an early backer of Seattle-based aQuantive, which had a big IPO in 2000 and was bought by Microsoft for $6 billion last year. “We thought this region would take off as a tech region,” says McAleer.

But there were a number of challenges. “When we first started, it was how to get really senior talent into the city,” says McAleer. “That’s changed a lot. But back in 1997, there were still only a couple of opportunities they could go off to if their startup failed. The cost to build is somewhat less here [than Silicon Valley], so there’s a cost advantage. The other challenge is to attract really top-notch sales and marketing talent. It’s still thin in terms of really qualified marketing people. On the plus side, with the connected computing trend, consumers are leading rather than businesses.”

I’m a technical guy by training, so I wanted to hear more about this trend, and where the Seattle area fits in. McAleer explains connected computing as the “next stage of computing”—the next step in its evolution from mainframes, desktops, and PCs to the Web, Web 2.0, and smart mobile devices. As I see it, the proliferation of smartphones, social networking, and increased connectivity is changing the way people live, and is leading to all kinds of new applications for consumers and businesses. “We’re going through another sea shift in technology,” McAleer says.

He continues, “The unique thing about Seattle is with the software, wireless, and digital media base… eventually we’ll be connecting at all times. Seattle is really well-positioned for the blend of all three… Most other tech areas don’t have the richness in anchor tenants and available talent. When we started investing, you’d see teams from one company. Now you see teams that are from a mix of companies. And around all that has grown up a capital infrastructure, supported by a strong university.”

“This geography happens to have a lot of skills,” says Godreau. “With Linux in Portland, Nintendo and Xbox designed here, network and wireless companies here, and prominent retailers like Nordstrom, Costco, Starbucks. What happens when you combine those elements? You get the computing of the future. That distinguishes us from the Valley, …Next Page »

Comments (1) | Reprints | Share:        

It must be the weather—or rather, the climate. How else to explain another tech startup with Seattle roots moving to the San Francisco Bay Area? Last week I heard from DocVerse, a collaborative-document software company, which relocated from the Seattle area to San Francisco this summer after raising a round of funding from Bay Area investors. This week it’s Chatterous, a “multi-channel communication” startup founded by two former Amazon developers. The story of Chatterous cuts across three familiar themes we’ve written about lately: the investment climate for early-stage startups, the role of incubators, and the challenge of helping people manage their daily communications.

I tracked down Chatterous co-founder Wilkins Chung yesterday. He and his business partner Kenshi Arasaki have been busy with the move to San Francisco—they’re setting up an office in the SoMa neighborhood that will officially be up and running in the next week or so. The idea behind Chatterous, which is about to start beta trials, is to let you communicate with a group of friends, co-workers, or other contacts across different channels like e-mail, text messages, instant messaging, and Web-based social networks—as smoothly and automatically as possible.

The idea was born from an experience many people can relate to. Chung says that on Thursdays or Fridays at Amazon, he would send out e-mail blasts to friends about getting together for happy hour. But some people wouldn’t get his message because they had already left or weren’t checking e-mail. So he’d have to call them or send text messages. “I became the aggregation point, and it’s really hard,” he says. Why not create a service to handle these different modes automatically, he thought. It just so happens, he met Arasaki at one of these happy hours, and the two started talking about possibilities.

They applied for the Y Combinator incubation program and got in. “We thought, let’s go for it,” says Chung. “Opportunities don’t come along often.” So he and Arasaki left Amazon—Chung had been there for two and a half years plus an internship—and spent the winter session at the beginning of this year in Silicon Valley, developing their product and making contacts.

When the time came to raise a round of funding, Chung and Arasaki talked to investors from Seattle as well as the Bay Area. “We did talk to people from Seattle, but mostly people in Seattle came down to San Francisco,” Chung says. “We were in Seattle for a short period of time, with the idea to move down to the Bay Area.” In the end, Chung says, they raised a round of angel funding (an undisclosed amount, but Chung says it was less than $1 million) from four investors in the Bay Area.

And that’s the main reason for the company’s move—to be a lot closer to its investors. “We’d like the ability to just call them up for coffee,” says Chung. “Especially in the angel round, it’s not just about money, it’s about their experience, and being networked to people in your space.” (As an aside, Chung is from Toronto and Arasaki is from Calgary, so they don’t really have local roots that would tend to keep them in Seattle.)

Chung also had some keen observations on the early-stage investment climate in San Francisco versus Seattle. “People are willing to meet if you get an intro. Even if an investor isn’t interested, they’re really willing to help you find others who might be,” he says. “Our investors came about through referrals. It’s a lot easier to meet investors that would be suitable. [There seems to be] a lot more investment opportunity in the Bay Area than Seattle. Even if your company is in Seattle, it’s probably a good idea to come to the Bay Area. The network of investors is stronger than in Seattle in scope and breadth… In the Valley, the investor network is big, but word gets around really quickly.”

“Another thing is,” Chung continues, “a lot of investors [in the Valley] used to have their own startups. That’s a really big difference. Sure, you have people who made a lot of money in the corporate world, but still, having investors who’ve started their own company, have been through the whole thing, is very important. They can advise us on how to get through it.” The implication is that Seattle has fewer of these—which is probably true, at least in raw numbers.

At this point, Chatterous is still two guys, but they’re looking to hire. And that’s something that’s not any easier in the Valley. “The talent in Seattle is also there, it’s just as good as the talent in the Bay Area. In fact, recruiting is a bit more challenging, because there are a lot more opportunities to work for cool startups,” says Chung.

Chatterous is in the process of adding new features for its beta run, such as more types of social-networking channels. “We’re trying to make Chatterous into a product that you use without changing your existing methods of communication,” Chung says. If you’re used to primarily using e-mail or instant messaging, he adds, the aim is for you to not even notice Chatterous. That’s as opposed to a service like Twitter, which competes in the same social communications space. “The concept of updating your status for everyone to see—a lot of people outside the Valley don’t understand it,” says Chung. “Whereas with Chatterous you’re just trying to reach [certain] people and communicate with them.”

It’s definitely a crowded space, and Chatterous has its work cut out for it to stand apart. Kevin Merritt of Seattle-based Blist recently had an interesting post about how he views all the different forms of communication and their best uses—from face-to-face to e-mail to instant messaging and Twitter—and how much he likes yet another service, Yammer (which just won best in show at TechCrunch 50).

Comments | Reprints | Share:        

Over the past couple of weeks, I’ve been exploring the relationship between tech startups in Seattle and investors in the San Francisco Bay Area. We ran a story about what Seattle entrepreneurs can do to attract more attention from Bay Area VCs, and then a follow-up about whether there might be a brain drain of early-stage startups from Seattle heading south in search of funding. The pieces have generated some pretty spirited feedback.

One of the most provocative responses I got was from Shan Sinha, an MIT alum, former Microsoftie, and co-founder of DocVerse, a collaborative-document software firm originally based in the Seattle area. This summer, Sinha and fellow co-founder Alex DeNeui raised $1.3 million from Bay Area investors and relocated their company to San Francisco. Sinha has a very interesting take on Seattle versus San Francisco, for early-stage entrepreneurs. “After reading your article, most of the folks seemed to espouse a viewpoint that there is no advantage to being in the Bay Area and that starting a company and trying to raise money from Seattle is straightforward. There also seems to be a second thread through your anecdotes attempting to espouse that Seattle investors were plentiful and competitive,” he writes. “Our experience did not support either of those observations.”

For balance, I should point out that I recently spoke with data-visualization firm Tableau Software, which moved from the Bay Area to Seattle a few years ago because its founders wanted to live here. So it’s not like there’s an exodus of startups in one direction, or any big trend yet—these are just individual cases. (But I am curious to hear what others have to say, particularly those on the early-stage side of things.)

Sinha wrote, “We moved to the Bay Area for the same reason why people move to Hollywood to make movies. The Bay Area is for startups what Hollywood is for movies. Starting a company is hard enough, not being in the Bay Area is just introducing another hurdle in an already risky endeavor. Why not eliminate as much risk as possible? Any reasoning to justify not being in the Bay Area is a rationalization, in my opinion (often times valid… like “my family is rooted here”… but nonetheless a rationalization that must be overcome).”

He then fleshed out four concrete observations from his experience. The most interesting part to me is his discussion of meeting logistics—trying to build relationships and do deals from afar—as well as the idea that Bay Area VCs move faster and may be more willing to take risks. But I’ll let Sinha speak for himself:

— “Bay Area investors are made of a different ilk than anywhere else. In our experience Bay Area investors just moved at a different velocity. There were some exceptions…we did meet some amazing folks in Seattle …Next Page »

Comments (3) | Reprints | Share: