Funding for startups in the Pacific Northwest (PNW) fell precipitously early this year. From January to March, PNW financing dipped 80% to $246 million, down from $1.2 billion during the same period in 2022.
But one venture capital firm is anticipating a recovery.
Fuse, a Bellevue, Washington-based early-stage venture outfit focused on PNW companies, today launched a $250 million investment fund focused on software and "AI-enabled" startups. The fund -- Fuse's second -- is backed by state-affiliated accounts, foundations, universities and what Fuse describes as "many of the most high-profile Seattle-based software executives."
"Our mission at Fuse is to be the go-to partner for early-stage founders building bleeding-edge software businesses located in the Pacific Northwest," Brendan Wales, a Fuse co-founder and general partner, told TechCrunch via email. "Rather than going straight to large foundations and endowments, which we now have, we at first built a strategic limited partner base that consists of the world’s top technology leaders that live here and are our neighbors."
Fuse's new fund, which Wales refers to simply as "fund 2," will back 30 to 35 companies -- a smidge over the 24 investments that arose from Fuse's $173 million inaugural fund. As it has in the past, Fuse will co-lead the funding rounds, writing checks between $1 million and $10 million.
Regarding the specific types of companies Fuse seeks to back with fund 2, Wales says that they'll have to "automate business processes" and/or "make workers super human at their jobs." The latter sounds like a tall order. But Wales gives the examples of existing Fuse portfolio companies like Carbon Robotics, which is developing autonomous robots that use lasers to zap weeds, and Quandri, which aims to bring process automation to insurance brokers and agencies.
"We have a track record of investing in and helping to build massive software businesses," Wales said. "It's one thing to build an AI product. It's another to build an AI business that's valuable."
But, as a founder might astutely ask, why should a startup choose Fuse as an investment partner? After all, there's no shortage of VCs lining up to throw cash at new AI ventures. According to a recent survey by PitchBook and Collision, nearly three-quarters of global VCs invested in AI over the past year; 14% of the respondents claimed that they made more than six investments in the space.
Wales asserts that Fuse is at the "epicenter" of AI innovation, Seattle (although that's up for debate), and takes the time to get to know founders "extraordinarily early" in their journeys -- providing resources like access to limited partners including former Nike COO Eric Sprunk, GitLab CRO Chris Weber and iCertis founder Samir Bodas.
"There are no hard and fast rules. The number one thing is that we want to engage with founders as early as possible -- even if they have not left their current employer," Wales said. "We will invest day one through Series A and will provide founders access to some of the top enterprise buyers as they seek to discover and scale product-market fit."
Wales also argues that Fuse's roots in the Seattle entrepreneur scene give it an advantage where it concerns PNW startups over other, less "embedded" (e.g. San Francisco-based) VC firms.
Fuse -- which now has over $420 million in committed capital -- was founded by in 2020 by Wales, Kellan Carter, Cameron Borumand, John Connors, Satbir Khanuja and Seattle Seahawks linebacker Bobby Wagner. Carter and Borumand were formerly a part of Seattle-based Ignition Partners. John Connors was previously the CFO of Microsoft, whose headquarters is in Redmond, as well as managing partner at Ignition. And Satbir Khanuja, an early Amazon executive, is the founder of DataSphere -- which calls Bellevue home.
Fuse was started on the premise that the Seattle and broader PNW ecosystem was being greatly underserved, Wales said -- despite there being over 100 unicorns funded in the region over the past decade. Most of Fuse's limited partners live within 20 minutes of the VC firm's office.
While the VC ecosystem in Seattle has changed for the better, arguably -- Seattle ranked ninth in the Startup Genome's annual global startup ecosystem rankings last year, up one position from its spot in 2021 -- there's still much work to be done. Venture capital funding to Seattle-based startups hit a six-year low in the first quarter amid the broader tech slowdown.
"There had not been a fund started here in over two decades that can lead Series A investments prior to us being founded," Wales said. "By being in the epicenter of AI innovation -- our office is five minutes from Microsoft -- we felt strongly that founders would be attracted to a group that is local and willing to invest the time to get to know founders extraordinarily early in their journeys."