Seattle startups may be insulated from economic downturn, other insights from VC Chris DeVore – GeekWire
With fears of a hurricane approaching the US economy, venture capitalists are advising tech companies to cut spending and extend their cash runways as boom times stop.
But for the Pacific Northwest’s startup ecosystem, there is reason to be optimistic.
That’s the word from Chris Devore, founding managing partner at Founders’ Co-op venture capital firm in Seattle, who said the region’s focus on enterprise software may provide some flexibility in an uncertain economic environment.
“Whether it’s cloud infrastructure, developer tools, or business process automation — technologically speaking, we’re building the plumbing infrastructure,” DeVore told GeekWire this week. “We solve problems that people know are problems and are willing to pay to solve them – and I feel like this is the best place to sit down a cycle.”
Seattle has long been known for its institutional clout. It’s home to cloud giants Amazon and Microsoft, and startups that sell to other companies — also known as B2B companies — make up half of the GeekWire 200, our ranking of the Pacific Northwest’s top privately owned tech companies.
“Companies here are making business better, stronger, smarter, faster through software,” Devore said. “It might not be fun when the market is frothy and there is a lot of money going into the flashy and fancy stuff. But when the world becomes real again, it’s the plumbers who keep calling.”
It’s a similar thread that longtime tech industry investor Hadi Bartofi put in February 2020, just as recession fears began at the start of the pandemic.
Seattle startups continued to have a blast in 2021, with record funding and several newborns — part of the venture capital investment boom for startups globally.
Read on to learn more from DeVore about the downturn and what it means for startups. Conversation has been edited for brevity and clarity.
Thanks for talking to us, Chris. Let’s talk about what everyone is talking about: the economic downturn.
Chris Devore: The end of easy money had to come to an end at some point, and that’s probably a good thing. It will be uncomfortable and painful and people will lose their jobs and that’s all too bad. But the endless right-to-right creates all kinds of unhealthy disintegration of true value. We’re not just trying to pay the enterprise value based on private investment. We try to create companies that work and solve problems for money. I think we lost sight of that. So I’m kind of grateful to refocus the economy around creating real customer value.
What is different about this downturn?
The situation in Ukraine, particularly after the epidemic and supply chain shocks. To have this new external factor of war and the effect on energy prices in the supply chain – it adds a certain level of uncertainty and uneasiness to it.
How long do you think this will last?
It’s hard to see a V-shaped rebound here. There is no way for the government to motivate our way out of it. It would be difficult for a lever that anyone could pull to speed up the reset to normal operations. By the end of the year, we may have clarity on inflation and interest rates, but there is still uncertainty about supply chain issues and geopolitical restructuring. There is a lot of potential for long tail uncertainty.
What about the impact on certain sectors or sectors?
I am very interested to see how this cycle stabilizes in the cryptocurrency market. The engineering ideas behind cryptocurrency are really neat and interesting. But as an investor I struggled to see the value.
I’m also interested in the geopolitics of trade, and what it means for companies that rely on hardware manufacturing. If there is a chill in US-China relations in particular, what happens when nationalism plays a role in the innovation industry? I think it will open up interesting opportunities for how goods and ideas can move across borders.
Does the founders’ cooperation change its investment strategy?
no. Through our work, we raise funds every three years, are spread out over 3 to 5 years, and the fund lasts 10 to 12 years. We’re in the middle of a publishing cycle for one of the funds we closed in the first quarter of last year, so we have plenty of time. But I’m glad I don’t have to raise money at the moment. Even if people like our returns, it’s a anxious time to ask for money from people.
What do you advise founders?
It pays to sit at the bottom of the capital market group because we are both upstream and pre-investment investors. The life cycle of the companies we work with is likely to be 10 years on liquidity. This watch rests comfortably outside the typical duty cycle.
I was just on a call with an entrepreneur who was asking if it was a bad time to start a company. My short answer was that it’s never a bad time to start a company if there’s a problem you’re sure needs to be resolved now, and if you have a deep conviction of a problem you can solve better than anyone else.
There is now no shortage of capital for venture capital. There is still a lot of money flowing, especially for the small check category. And there is never a bad time to start a business if you are sure that it is a business that should be around today.
What worries you most about this downturn?
There will be ugly human losses to reset. It’s like 12 years of expectations about people’s jobs, hiring, and compensation. Many people lose their jobs. And a lot of the big companies that might have picked up that talent froze in hiring. Never underestimate the human toll of an economic downturn, even if it is good for the economic situation. It’s the real life and livelihoods of the families that are affected and that’s the hardest thing about that.