The state of Seattle startups: Silicon Valley tech giants are sucking up entrepreneurial talent

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(Kurt Schlosser / GeekWire)

“It’s not a real sexy story right now.”

That’s how GeekWire co-founder John Cook described the Seattle startup scene during our recent podcast about the past year in technology.

There were a number of new Seattle-based startups that sprouted up in 2016, along with several lucrative financing deals like OfferUp’s $119 million round and Accolade’s $70 million cash infusion.

But while Seattle’s startup activity still ranks among the world’s best and is a key component of the city’s broader technology ecosystem, there are a few inhibitors that may be stunting its full potential.

Listen to the podcast below, download the MP3 here, and continue reading for more analysis.

While having so many Silicon Valley tech giants open up engineering centers in the Seattle region — Google, Apple, Facebook, Uber, Salesforce, Oculus, Twitter, Palantir, and many others have large offices here — is beneficial for the overall tech ecosystem, it also could be keeping would-be entrepreneurs from starting their own ventures.

The rooftop deck at Facebook Seattle, complete with fire pit and walking trails. (Photo: Kevin Lisota)

Cook noted that if an engineer is deciding between a $100,000 salary at a new startup, or a $200,000 salary at a company like Facebook, a lot of folks may take the beefier paycheck rather than risk their careers at a startup.

“It’s taken a lot of the oxygen out of the room as it relates to the startup community,” Cook said of the out-of-town companies establishing their offices in Seattle.

That’s in addition to Microsoft and Amazon, the two tech giants based in the area that remain bedrocks of the tech community. Amazon, which launched two decades after Microsoft and continues to buy more real estate in downtown Seattle, is particularly notable as it relates to employees who have an opportunity to leave and launch their own startup, much like we’ve seen with former Microsofties.

Amazon biodomes under construction in downtown Seattle.

“I’ve been amazed that, even as Amazon has grown, it’s been able to retain this entrepreneurial culture and energy,” Cook said. “If you’re at a big company that allows you to do that … that’s hard to compete with. I think a lot of those people are still locked up at Amazon and haven’t left.”

I remain bullish about the long-term future of the Seattle startup ecosystem. I believe some folks taking jobs in the Seattle area at companies like Google, Facebook, and others will save enough cash and get the startup itch, either by way of investing in local startups or creating their own companies here. The money will flow back into the ecosystem, ultimately bolstering Seattle startup activity.

Cook agreed, but said it will take a “change of culture and style” in Seattle, a city where people tend to prefer working for many years at big companies rather than launching a startup.

He added that there still doesn’t seem to be enough capital in the region available for startups; Seattle has long been critiqued for its general lack of investors, both from the angel side and VC.

Numbers from PwC’s recent MoneyTree Report show $617 million invested in Washington state companies through the third quarter, which is more than the total invested in 2011. Even so, investment totals are down 42 percent this year compared to last year.

The number of venture deals also has fallen, from 65 deals through the end of the third quarter of 2016, compared to 104 deals for the same period last year, according to MoneyTree.

Here’s a look at the list of the biggest VC deals in the Northwest, according to PitchBook.

Source: PitchBook

On the IPO front, there were three Seattle-based companies that went public in 2016: PhaseRx, Impinj, and Apptio. That’s up from 2015, when no companies from the Seattle region completed IPOs, but it’s still down from prior years.

According to CB Insights’ fifth annual Tech IPO Pipeline Report, there were only 14 U.S.-based tech companies that went public in 2016, which is down from 28 in 2015 and 62 in 2014. The report also pointed to seven Seattle-area companies that are poised for an IPO next year: Avalara, Rover, PayScale, Redfin, OfferUp, Avvo, and Inrix.

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