MANAGING DIRECTOR, PIONEER SQUARE LABS | SEATTLE, WASHINGTON
A year and a half ago, Geoff Entress bought an apartment in Berkeley, California, and was astonished that the process was exactly as slow and bureaucratic as it had been 25 years before when he bought his first house. This reality check turned into JetClosing, a title and escrow company that modernizes the real estate closing process. That kind of thinking is exactly the reason Entress and his colleagues developed Pioneer Square Labs, a startup studio where creatives take an idea for a technology company through validation and funding and hand it to an entrepreneur to build.
Entress started his career out of Carnegie Mellon University as a trading analyst at Salomon Brothers in New York City. During the well-publicized trading scandal in 1991, Entress found himself working with the Justice Department, which sparked an interest in law. Following a stint at Prudential securitizing mortgage products, he earned his J.D. at the University of Michigan and moved to Seattle as a securities lawyer.
This career shift connected Entress to numerous private companies, and soon he began doing angel investing. He transitioned to venture capital at Madrona Venture Group in 2000 and still serves as a venture partner with Voyager Capital.
wHAT IS YOUR ELEVATOR PITCH?
The goal of Pioneer Square Labs is to create incremental startup companies that wouldn’t otherwise exist here in Seattle. These aren’t companies that someone else has created or would create if we didn’t. We’re coming up with ideas from whole cloth and creating companies that will benefit the Seattle technology ecosystem. We’re creating technology companies that are solving real problems.
Our immigration company, Boundless, is a good example. Every two weeks we have ideation sessions: Our group gets together, and people throw out ideas. We’ll bounce them around and vote on them, and if one has legs, then we’ll go further. At one of these sessions (back in the fall, before the election and before immigration became such a hot issue), my partner Greg [Gottesman] said, “I’m thinking about immigration. I think the process just seems to be broken. I think it’s something that could be improved.”
And to our surprise, four of our team members said, “I’ve been through that process with my family members, and it’s awful. It involved expensive immigration lawyers and tons of paperwork. It took forever. It was opaque; we had no idea what was going on.” And so we had people on our team who were very passionate about investigating whether there was something to be done here.
We spent about three months researching it, talking with folks that had gone through the immigration process. We then hired a mid-level manager out of Amazon who was a Chinese immigrant, who had first-hand experience with this problem as well. Xiao Wang joined the team, and we pretty quickly hired a few early team members. We ended up raising $3 million for the company — Boundless — back in April.
In less than five months, we went from just an idea thrown out around a conference table to a venture-backed company that now is targeting spousal and family visas and trying to make that process much simpler and less expensive for immigrants to be reunited with their spouse or their family.
How do you develop ideas?
Our model is to come up with an idea and then validate that idea. The first month is usually market research and early customer validation. We have a digital marketer on our team, so we often test that we can drive traffic to a landing page using Google ads or Facebook ads or other methods. But we don’t actually do any development yet.
If that all goes well during that first one to one and a half months, we then will put a development and design team on it, trying to come up with a minimum viable product. The goal of that product at that point is to do more customer validation. We’re not building what’s going to be the final product yet; we’re trying to prove that the idea that we’ve come up with is something that customers will pay for. It’s not that it can drive a lot of eyeballs — Facebook wouldn’t fit our model, because that’s something that’s going to take longer than a four-month cycle to validate. Consumer eyeball businesses usually take several months to years to validate. Traditional enterprise software could take a two-year-plus development cycle to prove that you can actually build a product that enterprise customers will buy. Our projects tend to involve more lightweight enterprise software or transactional consumer products — products where we can validate that customers are willing to pay for what we’re building in a relatively short amount of time.
What don’t people realize it takes to get started?
In the early days, it’s all about the people. You really need to have that entrepreneur who is not only passionate, but fully bought in and convincing, who can sell people. The best entrepreneurs I’ve seen are able to both sell me on investing in them and convince others to join their team, so they tend to be consummate salespeople in addition to being smart and passionate about what they’re doing.
Even before that, we start with what we think are good ideas. But the idea isn’t going to make something successful. We can have the very best validated idea, but if we give it to the wrong person, they’re going to mess it up. If we take an idea that is somewhat good and somewhat validated, even if we don’t have it exactly right, the best entrepreneurs are going to take that idea and figure it out. They’ll fix it and make it successful. Our whole model here is to connect the very best entrepreneurs here in Seattle with good, validated ideas, so they can avoid having to go through what is normally a 12- to 18-month process of validating an idea themselves in the garage with limited resources.
Almost as soon as we start thinking about an idea, we start thinking about the folks in our network who are a good fit for it. Usually in the first month, during our early business model validation, we’re thinking about potential CEOs and investors — but we aren’t really pitching them on it yet. Once we get to the point when we’re actually building the minimum viable product and doing additional testing, we’ll start bringing people in — both the entrepreneurs and our investors, whether that’s some of our angel investors or our venture investors. What we’re seeing so far is that, once we are convinced that a project has substantial promise and have attracted a talented entrepreneur to run with it, we have been able to convince the investors that there’s something here and get them excited about it enough to invest in a seed round.
What were your pivotal moments?
About two years ago, Greg came to visit me. He had started an entity called Madrona Venture Labs within Madrona [Venture Group]. They’re still running it at Madrona: They come up with ideas and validate them, similar to what we’re doing here. He was running that, but he approached me two years ago about doing this. He thought it would make more sense to have it outside of a single venture firm and to be backed by multiple investors.
A major milestone was getting the money raised, which happened back in September of 2015. We raised $12.5 million from 13 different venture firms and about 50 of the best-known angels here in town. We have VCs including Foundry Group out of Boulder and Menlo Ventures out of the Bay Area, and pretty much all of the VCs here in Seattle — Madrona Venture Group, Voyager Capital, Maveron, Trilogy Partners — as well as Bezos Expeditions, which is Jeff Bezos’ money, and Vulcan Capital, which is Paul Allen’s money. We have angels like Rich Barton, who is the founder of Zillow, and Steve Singh, who is the founder of Concur, which is now owned by SAP. For each of the things we’ve done so far, one or multiple of our venture firms have invested in them and led the deals. As a matter of fact, we probably have not made as much room as they would like as far as getting them all in. Everybody who invested in us was hoping to get into the companies that we’re creating, and we haven’t been able to let as many of them into deals as we would like. It’s a good problem to have — having more demand than capacity in the deals.
Pivotal players who get included in the “thank you” speech?
Greg Gottesman is one of the original Pioneer Square Labs managing directors and an original Seattleite. He went to Stanford undergrad and has a JD/MBA from Harvard. He then came out here and was one of the founders of Madrona Venture Group, where I worked with him for almost a decade. He was a managing director at Madrona for almost 20 years before leaving to do this.
Mike Galgon is one of our other managing directors and was one of the founders of aQuantive, an online advertising company started in the late ’90s that was eventually acquired by Microsoft in 2007 for $6 billion — at the time the largest acquisition that Microsoft had ever done. Mike and I have been friends and angel investors together for years. He and Greg were business school classmates at Harvard; they’ve known each other since the early ’90s.
Julie Sandler is our fourth managing director. She recently joined us from Madrona where she was a partner and an investment professional for six years. Before that, she worked at Amazon and, similar to Greg, she has an undergraduate degree from Stanford and MBA from Harvard.
Another cofounder at Pioneer Square Labs is Ben Gilbert. Ben worked with Greg at Madrona Venture Labs. Before that he had run the Garage at Microsoft, which is an internal incubation program there. He just won Young Entrepreneur of the Year from GeekWire, our big industry online publication.
Another key player is Ryan Kosai. He’s our chief technology officer, and so he manages our development efforts and has been CTO of a startup here before. He also built key products at Marchex and ExtraHop.
And David Zager is our chief design officer. He’s one of those designers who is impossible to find. One of the most difficult positions we’ve had to fill is design. The best UX/UI designers are few and far between, so we’ve had a really difficult time finding great designers that can design beautiful products. We refer to him as our unicorn; he’s just one of those people who is so great in so many different things: He’s been a professional musician; he’s run his own design firm; he can do coding — he’s a unicorn in every way.
How about growth?
In October 2015 we publicly launched. We started with our first eight employees, including a great core team of three development leads, all of whom had been CTOs of other companies before. Our team now has grown to 17 members on the core team. We have another seven entrepreneurs in residence who are working with us, who are potential CEOs or CTOs of companies we’re working on.
Most of the companies we’ve spun out are still officed with us. We have four companies that have had venture rounds announced; all of them have raised between $2.5 million and $3.5 million each, and each of the rounds has been led by one of our venture capital firms. The companies are LumaTax, Ad Lightning, JetClosing and Boundless. LumaTax has ended up in San Diego due to the CEO’s deep roots there, but in total we have about 80 people now on two and a half floors of a building in Pioneer Square, which is the oldest part of Seattle. We have our team and the four announced companies, and a handful of other companies that are unannounced that are operating here.
I can mention one of our entrepreneurs in residence, since he was written about in our press here: a guy named Matt Hulett, who ran the games business at RealNetworks and who was president of Atom Entertainment and president of a unit of Expedia for a while. He will be a killer CEO for one of the projects that we’re working on together. It’s actually in the e-sports space. E-sports is bigger than pretty much any other sport right now — League of Legends tournaments are played in arenas here in the U.S. More people watched the League of Legends world championship this past year than any event other than, I think, the Super Bowl or maybe some of these giant soccer events in Europe. It’s a fast-growing space, with lots of excitement around it, and we have who we think will be the best CEO we could have for a company in that space.
Does anything keep you up at night?
Our Pioneer Square Labs family has gotten so big. Trying to manage a much larger organization than we started with, as well as trying to figure out how to sustain this and turn it into a 50-year organization, as opposed to a one and done thing, certainly keeps me up at night.
We think we’ve come up with something special here. We’re developing processes that we have found are repeatable. I’m one of the owners of another startup studio up in Vancouver — Invoke Labs, which didn’t work out as well. The investment entity is still up there; we own equity in a bunch of things we created and helped create, but it wasn’t able to sustain. The lessons we learned from these other experiences we have applied here, and so I think we’ve gotten much better at what we’re doing — more efficient at it — and so we think we’ve come up with something that really can sustain.
What is your own startup experience?
I left the law firm where I was working and joined with a couple of other former lawyers, including one of my classmates from the University of Michigan Law School. We started a company in ’99 called Urban Earth focused on hip hop music and urban culture. We ended up with a team of about a dozen people at our height. We had a nice website — we had a lot of people from the University of Washington hip hop music club as interns working with us and producing content.
We raised several hundred thousand dollars. Back then, you spent money on servers and phone systems and a lot of things you don’t spend money on these days, so we ended up running out of money when the internet bubble crashed in the early 2000s. We were trying to sell digital music early on, but around the same time, Napster came out, and people were starting to believe music should be free. Napster obviously went away, but it took down a lot of the for-pay music sites that were being created at the time. Apple, obviously, a number of years after that came out with iTunes and proved that selling music online could actually be a very big business, but the early players in that space generally were killed along with us.
What does it take for a venture to succeed?
We’ve killed 50-plus projects now over the last year and a half. We’ve spun out several companies, but we’ve killed almost 10 times the number that we’ve greenlighted. And the main reason is that we find that customers don’t want what we think they should. If customers don’t want your product, you don’t have a business.
We had one idea around trip insurance for adventure travel. It turns out that maybe a couple people would want it, but people who are skydiving or doing other high-risk activities wouldn’t pay enough for it, relative to how much you would have to charge them to make it worth doing. We also often find that the customer acquisition cost for a given offering outweighs how much customers are willing to pay over time, so the lifetime value of each customer doesn’t justify the cost of acquiring them.
For something like the immigration process, though, people are already paying a lot of money to go through that process. It’s a horrible process. And customers are looking for solutions to this problem. If customers have a serious problem that they are willing to pay a lot of money to solve, we will always greenlight something like that when we see it. You just need to see a low customer acquisition cost relative to the customer lifetime value.
Why Carnegie Mellon?
I had the good fortune starting when I was in high school of working for an asset management company run by a guy who eventually became one of the best-known hedge fund managers in the world — Stan Druckenmiller. I worked for Stan at a firm he started called Duquesne Capital Management for four summers, starting in high school and then into college when I was at the University of Notre Dame. It got me very interested in equity investing and in Wall Street.
I’d been an English major in college, and so I felt that a quantitative degree would help me — obviously Carnegie Mellon/GSIA was one of the top quantitative schools. I went right from undergrad to GSIA. I ended up running analyst groups at Salomon Brothers in New York, where I worked a lot with mortgage securities, and at Prudential, where I was in their residential mortgage group. All of that was enabled by the very specific quantitative skills that I got at GSIA.
The broader management skills obviously have served me well. I did end up going to law school, which again added another dimension to my education. Law school makes you look at the world a whole different way. The combination of the two, I think, is a killer combination.
What’s the best advice you’ve received?
You have to love what you’re doing or you’re not going to do a good job at it. Make sure whatever you decide to do, it’s something that you can be passionate about and be the very best in the world at it. Think about what you’re passionate about, what excites you, and that’s the thing you’ll be able to be the best in the world at, or at least one of the best in the world at.
You can spend a short amount of time doing things that you don’t like if it’s adding to your skill set or life experience, but in the long term, decide what you really love doing and focus on doing that. You’ll be at your happiest and most successful.
When we were living in New York and New Jersey after our time at CMU, my wife wanted to move to the West Coast. She’s from the New York City area and wanted a change. I convinced her to let me go to law school first. We ended up moving to Ann Arbor, Michigan, where I got a law degree at the University of Michigan, and then we ended up moving out here in 1998.
Seattle’s the hottest housing market in the country right now. We’re seeing the fastest percentage growth in housing prices. We’re a city of 700,000 people, and we’re growing by a thousand people a week. A lot of that is because of Amazon and the other large companies that are here — Google has a big presence here; Facebook has a big presence here; SpaceX has a presence here. Almost all the Bay Area companies now have offices here, because it’s so hard to find people down in the Bay Area. So we’ve got a tremendously fast-growing tech population.
I think one of the most well-known Tepper grads is Brian Olsavsky, [MSIA ’89], who is the CFO of Amazon. Amazingly, when he came out here around 2002, Amazon wasn’t hiring Tepper folks, and very few Tepper folks were coming out here. Almost single-handedly Brian got Amazon initially to start hiring finance grads from Tepper, and then hiring more broadly as well. Now Amazon for several years has been the single largest hirer of Tepper grads.
One of the things we believed when starting Pioneer Square Labs is that within Amazon, within Microsoft, within Expedia, within a lot of these companies here, there are mid-level executives who are very entrepreneurial, but they’ve never been entrepreneurs before. And so what we’re doing would be very attractive to those would-be entrepreneurs. And we are seeing that, as two of our company CEOs fit that profile.
As I tell the job trek that comes out here every year, I would love to have more Tepper grads out here in Seattle — if you’re not going to stay in Pittsburgh — and if Amazon or Microsoft or Expedia is going to pay to move you out here, that’s great. If you’re truly an entrepreneur at heart, you’re not going to be happy at a large company, and eventually you’ll probably find your way to one of my companies. If you want to move to Seattle, I can find a home for you.