The Entrepreneurial Value Chain

I’ve been spending a ton of time lately on activities that don’t obviously have much to do with my actual “work” — which in its broadest description includes anything and everything needed to help Pacific Northwest founders build big software companies from scratch.

Whenever I catch myself wondering why I’m doing something — or better yet, explaining to my partners or our LPs what I’m up to — this is the best explanation I’ve come up with…

Almost any work can be visualized as a point in an extended value chain, with a cascading series of supplier inputs enabling the work coming in one side, and one or more layers of customers or buyers of that work going out on the other. 

We may only have direct control over the activities that happen within the four walls of our business, but the overall quality of our work, and our ability to realize a return for efforts, are massively dependent on both the upstream and downstream players in our value chain.

“Supply chain optimization” is one of those wonky, conversation-killing topics that’s sure to get you thrown off any fashionable guest list, but it’s also one of the most powerful and overlooked sources of strategic leverage in business. Some of the most valuable companies in the world — including Apple, Amazon and Walmart — have built wide moats around their business in large part due to their obsessive focus on supply chain management.

So what does a geeky manufacturing and logistics discipline have to do with running a seed fund?

When Andy and I started Founders’ Co-op back in 2008, we knew we’d have to do a lot more to build our business than sit back and wait for the deals to come to us. Each of us had moved to Seattle from a more vibrant startup city — Boston for Andy and the Bay Area for me — and Seattle suffered by comparison on every front but one: the depth and quality of local engineering talent.

We didn’t even know what we didn’t know about running a venture fund but we figured we could do some good — and hopefully make some money along the way — by trying to make Seattle a better place to build a company.

We started by aggregating a bunch of fellow entrepreneurs and angels as investors in our first little fund. Not only did this give us more money to work with, it also dramatically expanded our network for deal sourcing, due diligence, follow-on investment and mentorship for our portfolio companies.

With our first fund raised, we began scouring the Northwest for promising young entrepreneurs to back. In some cases, the companies we invested in were already up and running; in others, we had to play a more hands-on role in developing the thesis, building the team and validating the market in order to put our money to work.

As fun as it was, it didn’t take long for us to realize that co-founding companies in order to back them wasn’t the most scalable way to build a venture business.

Luckily for us, Brad Feld had been an investor and board member in Andy’s and my first Seattle project together (a failed experiment in local-social search we named Judy’s Book after Andy’s mother-in-law). Brad and David Cohen created Techstars just as we were getting Founders’ Co-op off the ground, and after seeing it in action we became convinced that the Techstars model could help solve our supply problem in Seattle by programmatically boosting both the number and quality of “investable” startups in the region.

Techstars is now the #1 startup accelerator in the world, and Techstars Seattle is in its fifth season as the global organization’s Cascadia outpost. As Managing Director of the Seattle program, Andy spends a huge amount of time each year on Techstars-related business, and in the past few years I also took an “official” (but unpaid) role on the Techstars Seattle team. The program is funded by a broad coalition of Seattle investors (Founders’ Co-op included), but none of the funders enjoys any special rights with respect to the companies that pass through the program.

All the participating funders are committed to Techstars Seattle for the same reason — it makes Seattle a better place to be a software entrepreneur.

Over the years, Andy and I have both added other activities to our to-do lists with even less obvious benefits to our core business:

  • I joined the board of the state’s tech trade association to represent the interests of the early-stage community alongside those of our established tech incumbents.
  • Andy started a developer training academy — CodeFellows — to help increase the supply of skilled local developers interested in startup work
  • I helped the City of Seattle establish a dedicated startup liaison in the Office of Economic Development — and somehow wound up chairing a City commission focused on the long-term economic health of the region 

Just last week we announced our most recent (and most ambitious) “value chain” project yet — a four-way collaboration among Founders’ Co-op, Techstars Seattle, UP Global and the University of Washington called Startup Hall

The big idea here is to use a physical space (the former home of the UW Law School) to bring together the region’s #1 educator of technical talent (UW) with the world leaders in entrepreneurial education (UP Global) and startup acceleration (Techstars), plus the region’s #1 seed-stage venture fund (Founders’ Co-op).

It wasn’t clear to any of us how Startup Hall would benefit our organizations directly or in the short-term, but it was abundantly clear to all of us that it would remove friction at several key points in the regional entrepreneurial value chain — and that the long-term systemic benefits to the region would raise the tide for all of us in ways we couldn’t predict.

I’m grateful to everyone who has played a part in these efforts to extend and strengthen our regional entrepreneurial value chain — not just the usual core group of investors and entrepreneurs, but increasingly including our region’s most forward-thinking political, academic and non-profit leaders. We still have much to do to make Seattle one of the few undisputed leaders in global innovation, but we’ve come an incredibly long way in a short time and I can feel the energy and momentum building here like never before.