Has the boom in Seattle’s economy overheated prices to the extent it is discouraging entrepreneurial activity? What of the roles played by Amazon and Microsoft—are they thwarting or encouraging innovation?
PitchBook's 2017 Venture Ecosystem FactBook: Seattle utilizes the PitchBook Platform to delve deeply into venture activity, exits and fundraising within the Seattle MSA, contextualizing VC trends within a snapshot of the current economic scene. Analyzing local trends in VC investment by tapping an ecosystem-centric framework, the publication draws from local perspectives and extant PitchBook research to present a snapshot of the health of the current Seattle venture ecosystem.
Report Highlights Include:
- PitchBook datasets on Seattle's VC investment, venture-backed exits and domestic fundraising
- Select economic statistics drawn from a variety of sources including CBRE, , datasets supplied by partners, the Bureau of Labor Statistics and more
- Analysis of outside investor activity within the region
Marked by an economic boom; tempered from recent peaks
When it comes to analyzing one’s hometown—of not just the author but also the company—one should be particularly aware of behavioral biases swaying the direction of analysis. Having grown up within the Seattle metropolitan area (comprised of Seattle, Bellevue and Tacoma), my perspective of, say, rising rents could overly color my reading of the sustainability of real estate value appreciation. Bearing that in mind, it is clear the overall startup and venture ecosystem in Seattle has been directly affected by the area’s considerable economic boom and accompanying population growth. It’s not just a matter of potential talent pools expanding—contending with higher costs of living, which play into a competitive labor market, remain key issues for startups. Another key aspect of the labor market is the role played by the longstanding domestic tech giants. Whether they play as direct a role as participating in financings or acquisitions or unwittingly developing future startup founders, Amazon and Microsoft—among others—are crucial players in the local venture ecosystem. On an anecdotal basis, perhaps their most direct impact is on the talent market, as entrepreneurs must make the case for the mission of their startup over the lofty wages and considerable perks companies such as Amazon can supply. Yet their role isn’t the only key factor affecting the most recent tempering of the peak investment activity of the past decade observed in 2014 and 2015; we explore many more in the following pages.
This is just the latest entry in our series of reports focused on exploring US venture ecosystems at a more granular level, relying most heavily on PitchBook datasets but also including relevant figures sourced from outside providers. We welcome your feedback and questions—reach out to us at [email protected] Special thanks to Voyager Capital, Maveron, TLG Capital, Dave Sharkey, local entrepreneurs and the National Venture Capital Association, among others, all of whom assisted in the production of this report.
GARRETT JAMES BLACK
Manager, Custom Research & Publishing
Seattle in the US Venture Ecosystem
Snapshot of Seattle MSA’s size within the US venture ecosystem as a whole
In early August 2016 we released the first US Venture Ecosystem: FactBook, the largest PitchBook report ever and a compendium of venture and relevant economic datasets for the top 12 (by overall venture activity) metro areas within the US.
When it comes to the Seattle MSA’s relative standing, it is clear Seattle qualifies as chief among what could be deemed a second tier of VC ecosystems. Just looking at deal volume, Los Angeles records nearly double the tally of Seattle in the same timeframe, although Seattle does stand as fifth in fundraising. (Here, we must clarify size does not denote quality in any way, shape or form, as frankly the Seattle area punches above its weight when it comes to producing successful venture-backed businesses.)
Note: As of 6/30/2016, this ranking was generated by weighting capital raised, VC invested, VC activity and venture-backed exit value equally, tallying up their ranking in each area, then summing and sorting from lowest to highest, with a lower score indicating a larger ecosystem.
Business is booming
Seattle’s current economic condition & recent trends
Seattle old-timers will recall a notorious billboard at the city limits requested that the last person leaving turn out the lights, during the depths of the “Boeing Bust” in 1971. Nowadays, local headlines trumpet the statistic that about 1,000 people moved to Seattle per week in the past couple of years. Drawn by the allure of significant economic growth—however concentrated it is within King County boundaries and in a few sectors—the population of the area is growing at a rapid clip, although anecdotally it is still a job-seeker’s market in not only the tech but also the service sectors. (For workers in the service and other industries that don’t enjoy similarly high median wages, however, grappling with rising living costs is difficult.)
In turn, this expansion has contributed to significant, in some cases rich appreciation in house and rental prices. A corresponding boom in construction has mitigated the issue of supply more so than in other hyped tech-centric metropolises, with an estimated 10,000 apartments set to open this year and 12,000 more in 2018—some estimate 98,000+ units will be needed by 2030. Although short-term pain of prospective renters doubtless exists, accompanying strength in the job market has softened the potential impact on recruiting talent. Average rents may have risen significantly over the past few years, but for a major metro area, Seattle still lags many when it comes to rent spending as a percentage of income. In fact, Zumper’s October 2016 numbers show that Seattle had a median household income of $80,349, relative to an average 1-bedroom rent of $1,800. Skewed by the rich wages doled out by local tech giants, that salary level masks how lower-paid startup workers may face difficulties when it comes to finding housing. Yes, there is room for further rises in rent and doubtless demand will still exist even if increases happen, but such hefty wage levels should be factored into operating cost analysis. From startups’ perspective, simply matching the overtures made by Amazon or Microsoft or other Valley-based companies such as Google to tech workers is the far greater challenge. On a related note, the engineering talent pipeline is considerable yet could well stand to expand even further, judging by the University of Washington’s focus on expanding its computer science program, as well as anecdotal evidence.
Is 2017 set for a plateau?
An overview of Seattle’s venture investment activity
Tempering the investing cycle
At approximately $601 million across 120 venture financings through the end of May, 2017 is unlikely to eclipse 2015’s massive $2.1 billion invested in 353 venture financings of Seattle MSA-based companies. That said, particularly when it comes to analyzing activity on such a granular geographic level, larger late-stage financings skew tallies of VC invested to a considerable degree—take Adaptive Biotechnologies’ massive $195 million Series F venture funding in 2015, for example. Hence, it is often safer to rely on transaction volume to assess the health of a given metropolitan venture ecosystem, with quarterly figures in particular lending clues as to overall momentum. On those fronts, the Seattle MSA is recording historically healthy levels of investment, if tempered somewhat from prior heights.
Nationwide creep in costs continues to affect domestic figures
Although the first five months of 2017 have seen a decrease in the median VC round size in Seattle at the late stage, pricing among more youthful financing types remains on the historically higher end. Competition among recently raised domestic funds, as well as ongoing interest on the part of outside investors, is certainly contributing to the continued elevation of financing price tags, but from a more macro perspective, that in itself is just part of the nationwide increase in such deal metrics. Anecdotally, it’s clear that a startup can receive Valley-level valuations, if the founding team is proven.
Seattle’s tech ecosystem has been marked by local giants
The Seattle tech ecosystem has been indelibly marked by the presence of Microsoft and Amazon. Corporations have not participated in financing many startups, likely due to incumbency challenges in the area—a steady flow of such participation is still occurring, but its volume trends below recent national averages at just 9%. However, the local tech giant presence is clear via what recycling of talent and capital occurs, as entrepreneurially minded employees jump ship to start their own enterprises or form angel groups to fund nascent ventures. Brad Silverberg, a Microsoft veteran who later became co-founding partner at Ignition Venture Partners, serves as one prominent example. It should be noted that given how long Microsoft and Amazon have been established players that the rate of such recycling could be expected to be much higher. Local cultural tendencies and competitive pressure from said players, not to mention the more cautious demographic characteristics of the older, more established tech worker population, likely detract.
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