Seattle Start-Up Ecosystem Poised For Consolidation after the Initial Thrust

After the great recession, the past decade saw a bullish stock market generating more than $30 trillion in wealth in the US.  In the Seattle area, the ramifications were more as this state ended on a positive note, with many start-ups making a significant impact.  The Seattle area is home to some of the world’s iconic companies, the notable ones being Microsoft, Amazon, Boeing, and Starbucks.  

With more than nine $1 billion-plus companies created in the previous decade, no wonder investors continued to invest in start-ups. With Venture Capital (VC) funding hitting $69 billion across nearly 4000 deals in the 1st Quarter of 2021, Seattle alone closed at $3.50 billion in VC funding last year and $1.64 billion in 2021 Q1.  It is not surprising that Seattle is the preferred choice for companies looking for top talent, generous funding, and steady footholds, especially tech start-ups. 

So, What Is Next?

Despite the ongoing pandemic, 2020 saw a record VC funding in start-ups. Going forward, mega deals worth over $100 million are already in the pipeline.  While the larger tech companies continue to draw scepticism from the stakeholders, the techies in Seattle, with their mission-driven smaller start-ups, continues to provide employment opportunities.   Even as the new start-ups combat fake news, they continue to churn out new products that range from Machine learning algorithms to new hair care products.     

While many of these start-ups are still in the infancy stage, they have shown vision, remarkable growth, and potential.  The founder and CEO of Pitchbook, John Gabbert, observed that despite the high level of funding in 2020, the dry powder is sitting at an all-time high. Non-traditional investors are willing to write large checks at early stages and even for future obligations or acquisitions.  

Some of the top Seattle deals in the past 12 months included funding new ventures and blockbuster acquisitions, some of which qualified for the “deal of the year” at Geek Wire’s Deal of the year award.    

A list of recent start-ups can give an idea of the strides made in the start-up ecosystem.

1.  A 2.30 billion valued 9-year-old company Highspot has raised $200 million for its enterprise software for salespeople in the Seattle area. 
2. Rad Power Bikes raised $150 million for its e-bike business. It takes benefit of the direct-to-consumer business model in order to curtail its supply chain, detour traditional bike shops and improve its line of 11 e-bike models. 
3. Former Zulily Executives raised $150 million for a new venture that buys profitable e-commerce businesses and accelerates them through a new firm called CapHill Brands in Seattle. 
4. Cybersecurity giant Tanium gets $150 million, following HQ move from San Francisco Bay to Seattle area. The leading investors of this new venture are Fidelity Management & Research Company, Andreessen Horowitz, T. Rowe Price Associates, and Baillie Gifford. It is now a $9 billion company after a fresh infusion of funds and looks for growth in its cybersecurity services. 
5. One of the new unicorns in the Seattle area is Rec Room which has raised $100 million as social gaming popularity fuels enormous growth. It already has 15 million lifetime users, and over 2 million people have created content on its platform. 

Case Study Of Apple Acquisition Of Turi 

Turi was founded in 2013 by professor Carlos Guestrin. This Artificial intelligence and Machine language start-up got seed funding from Madrona Venture Group and other angel investors. The company grew quickly and became an expert in machine learning. In 2016, tech giant Apple acquired Turi for a record $200 million. This acquisition became the engineering center for Apple in Seattle. Over the next three years, Apple’s workforce doubled with massive leasing of building infrastructure that could hold 4500 workers.  This considerable growth led to financial windfalls for angel and VC investors who could exit and move on to invest in new start-ups and more company creations. 

The above analysis points to how cycles are repeated when talent pools that were early hires of start-ups repeated the same process and accelerated. They have seen successful exits that motivate them enough to become start-up founders themselves. 

What Are The Components Required To Repeat Such A Success Story In Few Years Down The Line?

• A Critical Mass Of Talent

The talent pool in Seattle is hitting the critical mass.  Apart from Apple, more than 130 engineering centers are teaming with talents that could seed the subsequent start-ups. Not only start-ups but also big established brands such as Adobe, Airbnb, Facebook, Honeywell, Jp Morgan Chase, Cisco, Dropbox, eBay, Uber, Twitter, and many others are also setting up shop in Seattle. The technical headcount from the engineering centers and those established companies is a record 120,000 and growing. With approximately 20,000 engineering job openings on LinkedIn within a 50-mile radius of Seattle, the opportunity is enormous for other job roles such as sales, marketing, Operations, Finance, Legal.  With more recruitment, the leasing of office spaces has also seen rising demand.  

• World-Class STEM Education

The Seattle area has seen a rapid expansion of STEM programs, with the University of Washington (UW) offering specialized research centers. Private equity funding in the past few years in UW School of Computer Science and Engineering by the Microsoft co-founder Paul Allen in 2017, and later more donations came in from other corporates like Amazon, Google, and Microsoft.  

With its incredible talent, no wonder the Seattle area was recently ranked No. 1 as the most educated city in the USA, where 63 percent of people hold a college degree.

• Increasing Start-Up Venture Capital 

Venture capital is the lifeline for any start-up, with the Seattle area continuously seeing VC funds flowing in.  In the last two years alone, well-established venture capital firms in Seattle have raised more than $1 billion for their next round of early-stage funds groups like Madrona, West River Group, Maveron, Frazier Healthcare, Voyager, and Founders’ Co-op. These new funds add to existing funds, including dry powders like Ignition, Tola Capital, Arch Venture Partners, etc.

The Seattle region has seen many female entrepreneurs and several leading female Venture capitalists making their presence felt in the start-up ecosystem. More than 1.1 billion seed funding was raised in Seattle area start-ups in the last two years, with a significant percentage of that investment outside the Seattle area.

• Company Build-Up Support

It is hard work to get a start-up off the ground. Still, numerous start-up studios with incubators and accelerator courses are available for newcomers or experienced entrepreneurs in the Seattle area. Seattle is home to crash courses on accelerators that connect entrepreneurs and leading incubators, helping entrepreneurs turn technologies into large and influential companies. The Seattle area is also aiding several support programs that directly focus on assisting diverse founders in tailoring support to their needs. 

Conclusion 

Finally, there are still some key challenges that the ecosystem needs to overcome despite the angel investor culture. Still, as you can see, the Seattle area is booming and reaching a tipping point for its start-up ecosystem. Numerous leading indicators paint a picture of the extraordinary acceleration of start-up formation in the coming few years. The 120,000 engineers mentioned earlier get ready to find their start-ups. This is expected, even as the Seattle area will be ready to host them. They have the ingredients and components in place.