Seattle and Silicon Valley Square Off

In the way that really only an online discussion can, the debate over which place is better, Seattle or Silicon Valley, has spun into a gloves-are-off, let's-take-this-outside kind of brawl.

It got kicked off with a brief New York Times article about Seattle becoming the next Silicon Valley. Shortly after, Seattle-based Redfin's CEO Glenn Kelman wrote a blog post about his experiences with startups in both locations. It was met with a harsh response from Michael Arrington, who has worked at a number of startups, on TechCrunch. And from there, the slugfest was on.

Silicon Valley folk bristled at the suggestion that the valley might not be "the" place to find the brightest minds and the deepest pockets, and they jeered at Seattlites for being more interested in snowboarding and kayaking than work. Seattlites rebutted that they have it all: Exciting careers in hot startups and evenings skiing in the nearby mountains.

The reality, venture capitalists and startups say, is that Silicon Valley undoubtedly has far more money to be had, as well as more entrepreneurial computer scientists. But Seattle has a growing amount of cash and a fair amount of talent.

"Seattle has arrived in the big leagues," said Scott Darling, a general partner at Frazier Technology Ventures in Seattle. "We're not Silicon Valley, nobody is, but we're playing for real." Darling lived in Silicon Valley from the mid-1970s to 1990, when Andy Grove, one of Intel's founders, asked him to move to the Northwest to continue working for Intel. Darling said Washington state is now tied with Texas for third place in terms of VC money, behind Silicon Valley and Boston.

Seattle Boom

The recent boom in Seattle could be partly due to Microsoft's decreasing stature as a cutting-edge technology leader, at least according to one theory from an investor. Silicon Valley and Boston both boomed after a great company began to slow down -- in the valley, it was Fairchild, and in Boston, Digital Equipment -- leading bright minds to leave and start their own businesses, said Jeff Schrock, a partner at Monster Venture Partners in Seattle, who used to work for Yahoo in California.

"I think we're at an interesting stage in Seattle with Microsoft becoming more of a slow and steady growth company," he said. "For the first time, there are lots of people coming out of Microsoft looking for entrepreneurial opportunities."

Others agree that Microsoft's historical success is to blame for the lack of a more vibrant startup community until recently. "I think it's shocking how few companies have really come out of Microsoft," Kelman said. By comparison, "you could name 50 companies that came out of Oracle," he said. "If you made the same list for Microsoft, I'm not sure how far you'd get beyond Real Networks."

He has a similar take as Schrock on why that might be. "For a company to be truly good at producing entrepreneurs, it has to be successful enough to get the really brilliant people -- but not too successful," he said. "At Microsoft, you could legitimately argue that you could make more money by staying than starting your own company. So people got trapped in the center of a now-stagnant supernova."

With Microsoft and Amazon as the big anchor companies in Seattle, most of the startups now are around software or Internet services. "One thing the Valley does have that Seattle doesn't is that they have a lot of experience in building hardware and networking-based companies," said Schrock. "While there are a handful here, the depth isn't very strong."

Darling thinks it's a benefit that Seattle isn't breeding semiconductor or router companies. "The truth is, almost all those markets are very hard to be competitive in in the U.S.," he said. Places like India and China are graduating scores of hardware engineers a year, who can develop hardware companies far cheaper than in the U.S. He knows many venture funds in the Valley that won't fund semiconductor companies in the U.S. because the returns are just too slim.

Small-Town Feel

Perhaps because the whole VC-startup machine is smaller in Seattle, it takes on a bit of a small-town feel, the executives said. "Loyalty in the Valley is nonexistent," said Schrock. He cited recent news that Sheryl Sandberg left Google to become Facebook's chief operating officer. Switching allegiances like that is rare in Seattle, he said.

That small-town feel also means that investors work closely with the companies they fund, said Kelman. Because the investors don't have as many deals to consider, they have more time to work with the companies they invest in, he said. Startups can find that anywhere, he noted, but it's more common in Seattle.

In addition, the "Valley does tend to get into group-think more so than Seattle," Schrock said. "There are certain types of companies that are very popular in the Valley, and if you don't fit that mold they're not that interested in you." That means that companies that don't fit into that model will find it very tough to get ahead there, he said.