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The DL - An inside view into Pacific Northwest Tech

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Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.
 
January 27 · Issue #32 · View online
The DL
Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.

This week’s issue has a deep dive on Pioneer Square Labs and their spinouts, a list of big investment ideas, a rocketship stock, and a challenge to see if you’re smarter than AI.

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PSL Studio Deep Dive
looks better on their website 👉 www.psl.com/companies
looks better on their website 👉 www.psl.com/companies
Last week, PSL published an awesome case study on how they decide when to kill a startup idea. It’s a great look at their methodology for market sizing and validation using both high level market data and data from “in-the-wild” experiments on Google and Facebook.

It also inspired me to write Part Two on Pacific Northwest / Seattle venture firms and what areas they are investing in. Part One was a deep dive on Madrona’s investment strategy, and here we’ll take a closer look at PSL…

Pioneer Square Labs (PSL) was founded in 2015 to test and incubate startup ideas before recruiting a team to lead the company and spin out from the lab. According to TechCrunch, PSL companies comprised ~14% of all early-stage VC deals in Washington in 2018, which is pretty awesome! (If you want to read more about how PSL works, this article is really good)

PSL’s website currently shows 15 studio spinouts (all listed below), and here are a few themes that jumped out at me:

⚙️ Process Automation for Boring Stuff
I hope my friends at PSL aren’t offended when I say they like boring stuff 😊, but it seems like they have a winning formula for SaaS companies: take a boring/terrible/complicated process with lots of paperwork and manual review, and make it digital and seamless. Examples:
  • Boundless – technology platform with information, tools, and support for family immigration issues
  • JetClosing – mobile-first title and escrow company modernizing the real estate closing process
  • Lumatax – all-in-one solution for sales and use tax compliance
  • Shujinko – cloud compliance software that automates environment setup, maintenance, and audit prep
  • SigmaIQ - reconciliation engine designed to automate the financial account reconciliations process
  • SingleFile - legal-tech company for automating compliance filings

🎯 Analytics, Ads, and Marketing Optimization
Having the founder of the world’s largest digital agency and marketer-side ad serving platform at PSL probably helps them identify unique opportunities in analytics and marketing tech. So no surprise they have several spinouts that use ML to optimize marketing performance:
  • Ad Lightning – ads analytics platform to eliminate bad ads and maximize revenue for publishers
  • Attunely – ML platform to optimize recovery strategies for the accounts receivable management industry
  • Gradient – digital advertising platform to optimize Amazon Marketplace performance
  • Remarkably – tech platform to help multifamily real estate owners and managers improve marketing performance

🔥 New, Rapidly-Growing Markets
The ability to quickly build, test, and validate new ideas is an important part of being there for the “next big thing.” Over the last few years, we’ve seen the rapid rise of DTC personal care, podcasting, labor shortages in healthcare, and streaming/esports. PSL has launched startups to capitalize on the growth in each of these markets:
  • Gemma – direct-to-consumer haircare company selling custom-formulated shampoos
  • Glow – membership platform for podcasters to build media businesses
  • Nextstep – platform to recruit, train, and place workers at entry-level, in-demand healthcare positions
  • Tally - web and mobile-based social platform designed to connect celebrities with their fans
  • Taunt - gaming companion platform for esports fans to engage in interactive challenges 

Hope you enjoyed this look at PSL spinouts! I’m going to slowly work my way through the list of PNW venture firms, so stay tuned!

ARK Big Ideas 2020
I really like ARK’s research reports because they do a good job analyzing markets from first principles (even though I sometimes disagree with their conclusions). Here’s a link to their 2020 report where they highlight 11 “Big Ideas” that are creating large-scale investment opportunities.

While most of the ideas aren’t really ground-breaking, it’s worth flipping through to understand why investors think these are such big markets. Here are some of the ones that jumped out at me because ARK had interesting, contrarian, or novel information:
  • Deep learning - AI models are getting trained with 10x more computing power each year (5x more than Moore’s Law)
  • 3D printing - 3D printing has lost a lot of investor interest, but it’s now at a “tipping point” because of real use cases in manufacturing
  • Digital wallets - digital wallet adoption is occurring 2x faster than social media; Venmo has more users than Chase or Bank of America

🚀 Rocketship stocks
Speaking of big ideas, space travel is super hot. Over the last two months, Virgin Galactic’s stock has jumped from $7 to nearly $20. Analysts only expect the company to make $4.5M of revenue this year, but somehow it’s worth more than $3B. Looks like people really want to invest in space. 🤷🏻‍♂️

(btw - you can see their investor deck here. I like the investment rationale section, which centers around rich people valuing experiences over things, and the market sizing based on research showing that consumers are willing to spend 1.0-1.5% of their net worth in a single discretionary purchase)

Other stuff Dan's talking about
☝️ Got this one (and a bunch of others) wrong
☝️ Got this one (and a bunch of others) wrong
🙂 Which face is real? - This is fun. A couple UW professors set up a website that shows you two faces, and you have to guess which one is a real human (vs. AI-generated). My best run was 7 in a row. Let me know what you get!
👨‍🏫 Scott Galloway - An NYU marketing professor has been dropping a bunch of hot takes on companies like Casper, Oyo, FedEx, and Twitter. They’re good - my favorite part of his Casper analysis was the “economics work better if Casper sent you a mattress for free, stuffed with $300.” 🤣
👶 Tough job - A Silicon Valley CEO (who is clearly great at writing very detailed job descriptions) posted an ad for a nanny that went viral on Twitter last week. She also did a great follow-up interview on the ad.
Volunteer Park Cafe - Is for sale! If you’re shopping for a house but also want a great cafe downstairs, it’s a pretty good deal. $1.7M for the cafe plus a three bedroom apartment upstairs. Check out the listing here.

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About me: I work as an investor at Madrona Venture Group, a Seattle-based venture capital firm that has been early partners with companies like Amazon, Smartsheet, Apptio, and Redfin.

If you have thoughts, questions, or comments, hit reply!

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