Silicon Valley VC view: 5 reasons why Seattle will become a hub of business cloud services

I’ve recently read several articles about the difficulties that Seattle entrepreneurs face when building business-to-business companies.  While some might find this discouraging, I actually see this as a great opportunity.

From my perspective in Silicon Valley, the Seattle region is right on the cusp of developing its own enterprise start-up ecosystem, particularly focused on business cloud solutions.

Here are five reasons why I am optimistic about Seattle:

  • Seattle is a hot bed for technical talent.  Beyond Microsoft, Amazon, Boeing, Nordstrom, Redfin, Zillow, Expedia, RealNetworks, Nintendo, T-Mobile, and AT&T Wireless, the Seattle region is Google’s third largest office in the country with over 1,000 people.  In addition, Concur, the leading cloud expense management solution is based in the Seattle region with over 2,000 employees.  Meanwhile, business cloud startups in Silicon Valley are leveraging technical talent from Salesforce, Google, SAP, Oracle, Cisco, Apple, LinkedIn, Intuit, and Adobe.
  • The funding climate is growing increasingly hospitable to business cloud companies. This mirrors a trend in Silicon Valley.  For instance, a higher percentage of companies in the most recent TechStars class are in the business cloud space.  Also, many seed investors, such as Founder’s Coop, Bezos Expeditions, TiE, Alliance of Angels, Second Avenue Partners, and super angels Geoff Entress and Rudy Gadre, are investing in software-as-a-service.  9Mile Labs, an accelerator exclusively focused on the business cloud (just like Alchemist Accelerator in Silicon Valley) launched recently to support the high volume of B2B startup activity.
  • Seattle is a great place to live.  With a low tech unemployment rate, Seattle offers a great quality of life with good public transportation. It also has the best coffee in the world, nice parks and lakes, and great outdoor adventures for hiking, biking, boating, skiing, and fishing.  It is also only a few hours from Mount Rainier, Portland, Whistler, Vancouver, and San Juan Islands.  In addition, Seattle has significant cost of living advantages versus Silicon Valley, aided by no state income tax.
  • The Seattle start-up environment is building momentum.   Well-known senior executives are leaving to join business cloud startups.  Some break-outs have already occurred such as Tableau Software’s IPO in May, valuing the company at $3.9 billion. Other big deals include Donuts, which has raised $150 million, including money from my firm. Apptio, Avalara, Inrix, Opscode and others have all raised tens of millions of dollars. Recent acquisitions such as CenturyLink’s purchase of Tier 3 and IMS Health’s purchase of Appature; and RealPage’s purchase of ActiveBuilding; have helped put the region on the map. Other emerging business cloud companies are on the move, including BigDoor, Buuteeq, EagleView Technologies, EnergySavvy, Frontdesk, HasOffers, Limeade, Medio, Moz, Simply Measured, Scout Analytics, Socrata, Smartsheet and Usermind. Those companies are creating a robust ecosystem.
  • Seattle is starting to see geographical concentration.  Like SOMA in Silicon Valley, tech neighborhoods such as Pioneer Square, South Lake Union, Capitol Hill, Fremont, and Bellevue help spur cohort mindset, centralize talent, and foster more effective networking. In addition, The University of Washington is playing a bigger role in seeding and growing companies, as well as seed funds exclusively focused on business cloud like Illuminate Ventures and Cervin Ventures in Silicon Valley.

With all these positive trends, I expect that we will see a big uptick in funding and growth for Seattle business cloud companies in 2014.

Sean Jacobsohn is a venture partner with Emergence Capital, a Silicon Valley venture capital firm focused on business cloud applications. Emergence is an investor in companies such as SuccessFactors, Box, Veeva Systems, Lithium, and Donuts.