Bill Burnham, Angels + Early-Stage VC in Seattle

This blog post by Bill Burnham has generated a ton of buzz today, but it’s worth (briefly) chipping in about how the trend is playing out in the Seattle market. The quick summary of Bill’s point is this:

“there is plenty of investment capital available for Consumer Internet companies that have demonstrated significant market traction in terms of traffic or revenues, but there‚Äôs almost none available for what, up until recently, would be considered the sweet spot of true VCs: Seed or Series A startups.”

When Andy and I started Founders’ Co-op, this was exactly the situation we saw here in the Seattle market. As VC fund sizes have grown (both here and elsewhere), partners have found themselves unable to justify putting time toward deals that didn’t also consume a big chunk of their capital under management (e.g., $5MM – 10MM over the life of the investment). With the “hard” (cash) costs of starting a web software company fast approaching zero, it has become almost impossible to align the incentives of traditional VC investors with those of web entrepreneurs.

Our primary goal in creating Founders’ Co-op wasn’t to make a ton of money (not that we have a problem with that, it’s just not what we’re optimizing for). It was to continue to work together on web startup ideas, but in parallel rather than serially (as we had before at Judy’s Book and elsewhere). What we found when we started was that there was (and is) a huge unmet need for transparent, entrepreneur-friendly sources of investment capital for early-stage entrepreneurs here in Seattle. Even more significant, there was (and is) a real hunger for community among the software entrepreneurs in town – a way to connect with peers, swap stories, pass along best practices, and sometimes even do business together. We aren’t the only ones working on this issue by any means – Seattle 2.0, Seattle Tech Startups, NWEN, UW CIE and others are critical participants – but we’re one of the few groups in town that actually writes checks in addition to providing advice and support.

This persistent early-stage “funding gap” helps explain our excitement about the announcement of TechStars Seattle. By enlisting the support of all the major VC players in town for TechStars Seattle, Andy has forged a powerful bridge between Seattle’s early stage and VC communities unlike anything we’ve seen in other tech cities. While it doesn’t typically make sense for these firms to make direct investments in seed-stage companies (for all the reasons Bill describes), they all jumped at the chance to support the early-stage community indirectly via an investment in TechStars. Their bet (and ours) is that the program will have a lasting positive impact on the local early-stage community, creating more and better investment opportunities at every layer of the financing ecosystem.

We may not be able to defeat the economic realities Bill Burnham describes, but with TechStars Seattle the local venture community has stepped up in a big way to fight the trend.