Seattle gets fresh look from California investors

Jon Staenberg, managing director of Staenberg Venture Partners, says Seattle could use an image makeover among outside venture capitalists.

It started out as a plea: Seattle-based investor Jon Staenberg asking the venture community to stop spreading the idea that Seattle’s entrepreneurial spirit was dead.

By Tricia Duryee
Seattle Times Eastside business reporter

In the May edition of the Venture Capital Journal, a widely read trade publication, Staenberg wrote that negative media coverage and a bleak assessment among venture capitalists were giving potential investors from Silicon Valley an incorrect impression about the Pacific Northwest.

"I wanted you to know that our words do have an impact," he wrote. "I travel to the Bay Area almost every week. They are overwhelmingly ‘hearing’ that things are not good here."

So Staenberg acted on his own words.

Last week, a road trip he co-sponsored brought about a half-dozen large and midsize California-based VCs to Seattle to see for themselves. During a two-day tour, the participants met local VCs over cocktails in Belltown. On Thursday morning they watched six business-plan presentations, sharing ideas afterward on why investors don’t participate more widely in Northwest ventures.

The event, also sponsored by a Silicon Valley-based group called the Fundraising Forum, included a trip to Vancouver, B.C., for some of the same drills.

"It very much served what we were trying to do," Staenberg said. "Getting the two areas talking to each other — really talking, in a comfortable setting — hasn’t happened before."

He said there are hundreds of VCs in Silicon Valley who have never made a Seattle-based investment. "Seattle is a rich resource for them," he said. "It’s crowded in the valley. There are many of them competing for the same deals."

The VCs taking part in the road trip were Propel Partners (also an organizer), Sequoia Capital, Hitachi Corporate Ventures, WaldenVC, Canaan Partners, Osprey Ventures and Sierra Ventures.

None in 20 years

Mike Scanlin of Sierra Ventures said he hadn’t been with the Menlo Park, Calif., company long enough to know whether it had ever invested in a Seattle company, but he thought it was likely, given Sierra’s record of investing 25 percent of its money outside California.

He called his office to check and found out otherwise. "We haven’t made any in the 20 years. Not one," he said. "There’s no reason why we can’t change that."

Scanlin said he was impressed by five of the six business plans presented to the group. Sierra has $500 million it expects to invest quickly, making at least one investment a month.

After the presentations, issues the investors discussed included reasons the relationship between the valley and Seattle hasn’t been stronger. Common concerns indicated there were more similarities than differences between the two markets. Among the issues on investors’ minds: how to value a company, where so-called angel investors have gone, how to structure a term sheet and how to get a return on an investment when it’s difficult for a company to go public.

Tom Mawhinney, a principal at Canaan Partners of Menlo Park, said his company has two investments in the area: Vertis Neuroscience and Midstream Technologies. He thinks Seattle, unlike the valley, lacks an infrastructure that encourages repeat entrepreneurs. In the valley, it’s a badge of honor to have started a company, regardless of the outcome. By contrast, he said, when entrepreneurs fail in the Seattle area, they go back to Microsoft.

That perception isn’t true, said Staenberg, who had unexpected business in California and couldn’t attend the discussion on Thursday. He said bringing together VCs to address such issues will sort out the wrong impressions.

Alex Gove, vice president of WaldenVC in San Francisco, said distance might tip the balance against Seattle. While the valuations of startups and the costs of doing business are similar in the two places, Seattle is a plane trip away for valley investors, rather than a hop on the freeway.

Seattle isn’t too far away, others said, but they would need a strong local co-investor that could monitor a company day-to-day.

Sanjoy Chatterji, chief executive officer of one of the business-plan presenters, Bellevue-based Entomo, said he hopes cooperative efforts between the two technology centers will continue.

Regular valley visitor

"This is the equivalent of four trips to the valley," he said of last week’s meeting, adding that he has been to Silicon Valley 25 times in the past 12 months.

But he wondered how practical it is for California investors to dilute their resources by coming to Seattle. He pointed to Atlas Venture and Mohr Davidow, two VCs that opened Seattle offices, only to close shop recently. But he noted the value of communication.

"I think people tend to invest with people they know," he said. "Jon is getting the valley people to get to know the people in Seattle."

Tricia Duryee: 206-464-3283 or [email protected]

Copyright © 2003 The Seattle Times Company

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