Since I left Microsoft in May, I have been inundated by Microsoft executives and employees wanting to explore and engage in the Seattle startup ecosystem. Prior to joining Microsoft, I always wondered why I would never see Microsoft or Amazon employees at startup events. Now I know Microsoft is its own all consuming ecosystem, where internal networking can be way more important than external networking.
Here’s a guide on how Microsoft and Amazon employees can get involved in the Seattle tech scene, with limited time commitments.
Engage as an advisor or board member
Advising startups is a common way to contribute your expertise. Generally, in my experience, advisor positions are not a big time commitment, often involving meetings once a month or every couple of months initially. Your involvement may decline once a company raises venture capital unless your expertise is highly specific to their needs.
- Compensation: Advisor compensation typically ranges from 0.1% up to 1% of the company’s stock with the median grant of 0.25%, depending on the stage, your engagement, your expertise and chemistry with the founding team. Peter Walker of Carta does a good breakdown on LinkedIn.
- Board roles: Becoming a board member often occurs after a startup’s first round of financing, with venture capital firms seeking outside perspectives. They look for specific expertise that investors are not going to add — like unique industry or technology insights, go-to-market strategies, sales and marketing, or finance. Later stage startups will often hire “been there done that” CEOs or CFOs who can add credibility or guidance for a startup as they prepare to go public or be acquired.
Strategic investing in startups
There are two primary paths for investing:
Direct angel investing
This is a hands-on approach. Angel investing is a lot of work! A successful angel investor like Ron Conway in Silicon Valley can make a lot of money by being early to investing and then introducing startups to venture capital firms. To potentially make money, I believe you need to consistently invest in at least 20+ companies over four to five years, making four-to-five investments a year. The vast majority of these startups will fail, but you will start to see some success. Over that time period, you will build your reputation in the market as an investor, start learning what to look for, and then entrepreneurs can start coming to you for advice and funding.
Seed funds
Personally, I don’t have the time to commit to angel investing, but I want to support my fellow Seattle entrepreneurs and support the Seattle ecosystem. I have made investments in Seattle seed funds which are venture capital firms investing in Seattle entrepreneurs at the earliest stages of the journey. Many of these firms will entertain smaller funds, instead of $1 million minimum at more established funds. Seattle seed funds also value the local network and expertise to help develop their portfolio companies. Larger funds often have venture partners and deep industry relationships, when smaller funds do not.
Some notable Seattle pre-seed and seed funds are:
- Unlock Venture Partners
- Ascend
- Founders’ Co-op
- AI2 Incubator
- Flying Fish Partners
- Two Ravens VC
- Pioneer Square Labs
- Madrona
- Voyager Capital
- FUSE
- Maveron
- Tola Capital
- Second Avenue Partners
Seed funds are known for building a community around entrepreneurs and their investors. You can choose how involved you want to be. Most seed funds welcome investors with experience (particularly in enterprise and AI). You can mentor founders and help with the go-to-market and build a network across their investors as well. It’s been a great way for me to stay relevant in the market and keep expanding my network.
Expected returns & risks
The goal for most venture capital firms is to achieve at least a 20% internal rate of return (IRR) or greater. Venture investments are highly speculative, with 90% typically failing and fund returns can vary significantly. For example, a fund’s first fund might track 2-3X returns, while others might be flat or lose money.
Diversification across multiple funds is crucial to mitigate risk. Seed funds are considered the earliest and riskiest stage of venture capital. Large public investment firms like CALPERS, Washington State Investment Board, and the University of California publicly report many of the investment returns for private equity and venture capital firms. You can see the broad spread of returns based on the firm.
Diversification and getting into the “right” funds for the right vintage (i.e. the right year) is often key to success. It is easier to make money in a rising tide environment.
Networking and finding opportunities
The most important thing is getting started! Instead of sitting on Teams meetings in Redmond or South Lake Union, just get started by attending some events. My rule of thumb is that I am willing to go to any event where I think I can meet one person with whom I will do business in the future. I also try to meet at least one new person I have never met before at every event.
Meet people who are moving and shaking in the startup scene – would be entrepreneurs, co-founders, entrepreneurs, the startup curious, angel investors, incubators, seed funds and the service providers like the lawyers that work with start-ups like Perkins Coie, Wilson Sonsini, Fenwick & West, DLA Piper, and Cooley LLP. Law firms often have a finger on the earliest stages of the startup journey.
Below are a number of organizations that regularly host startup get togethers for the Seattle community:
- AI2 Incubator
- TiE Seattle
- Pioneer Square Labs
- Foundations
- GeekWire
- Seattle Tech Week
- Ascend’s Founder Bash
Get started!
The Seattle startup ecosystem offers great learning, networking and potential investment opportunities. Plus you can give back and contribute to the growth of the next Amazon or Microsoft right here in our backyard.
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