Seattle’s Silicon Slew Microsoft Alumni Help Fuel Quick-Growing Independent Software Industry

A mini Silicon Valley is sprouting in the leafy Seattle suburbs.

Bedroom communities such as Bellevue, Kirkland and Redmond are now growing their own software and Internet startups.

Much of the growth is being led by former Microsoft employees who leave the company with stock options and an entrepreneurial spirit.

“There’s a lot of (Microsoft) alums out there who have beaucoup bucks - they’re starting new companies, and they have money to invest” said Kathleen Wilcox, president of Washington Software & Digital Media Alliance, a trade association.

Jason Hall, the 25-year-old CEO of Monolith Productions, a Bellevue electronic game developer, predicts that “there will be a time when there are essentially two Silicon Valleys, one down there and one up here.”

Wilcox hopes Microsoft’s money will give Puget Sound an edge over other Silicon Valley wannabes, such as Boston, Austin, and the suburbs of Washington, D.C.

Even some Silicon Valley firms are betting on the area. San Mateo gamemaker Electronic Arts, for example, opened offices in Bellevue.

“When I first got here six years ago, I used to feel a bit isolated,” said Tony Garcia, general manager of the Electronic Arts Seattle office.

Now, he said, the gaming community has grown so large that 500 people in the industry showed up for the Electronic Arts office-warming party last month. “It now feels like we have our own gaming culture here,” he said.

Two years ago, the number of employees at software startups outnumbered those at Microsoft for the first time ever, according to the Washington Software & Digital Media Alliance.

She said Microsoft employs about 11,000 people in the state versus about 19,000 at startups.

The number of software firms in the state also has grown - to more than 2,000 from about 400 a dozen years ago, according to the software group.

The growth has sparked interest from venture capitalists, as well. Washington state attracted $295 million from VCs in 1996 - a 64 percent increase from the $179.2 million it garnered in 1995.

But Washington’s share still pales in comparison with the $3.2 billion poured into California companies last year, according to a report from Coopers & Lybrand.

Much of the venture capital in Washington still comes from those Microsoft stock options.

The only VC firms focusing on the Pacific Northwest are Vulcan Ventures, started by Microsoft co-founder Paul Allen; a Japanese firm called Encompass; and Voyager Capital, a new firm started by another former Microsoftie, Tony Audino.

Voyager has raised $7.5 million since it was launched in December, and Audino hopes to have $30 million in his coffers by autumn.

Audino said the biggest obstacle - beyond money - facing the region is the ability to lure programmers. Right now, programmers are scarce even in Silicon Valley.

“The Bay Area has something we don’t have - sunshine,” Audino said.

Other venture capitalists point out that most Seattle startups are cut from the same Microsoft mold.

“Here you have one big entity that has fostered all these people - it just creates one type of culture,” said Dale Vogel, who heads the Seattle office of Menlo Park-based U.S. Venture Partners.

“Silicon Valley has so much of a cross-culture and cross-fertilization of ideas and people,” Vogel said.

Although he is based in Seattle, Vogel said he does about half of his deals outside the area because there isn’t enough activity to keep him busy in Washington.

Many of the local startups are run by people such as Martin Dunsmuir - a self-proclaimed “Microsoft Millionaire” - who retired from Microsoft at age 36.

Dunsmuir spent a few years building model railroads and then joined Progressive Networks - a successful company run by former Microsoft employees that builds software to run audio and video on the Web.

And then there’s Jay Phillips, who left Microsoft in 1994 and founded a marine navigation software company.

“I was really looking for something that would get me out of bed in the morning and make me look forward to going to work,” Phillips said.

So he cashed in his options and turned to his first love: sailing. He built navigation software and founded Nobeltec Corp. in Issaquah - a few miles from Microsoft headquarters in Redmond.

He describes the high-tech community in the Seattle suburbs as a “ring around Redmond.”

Phillips said he profits from his proximity to Microsoft. He uses the Microsoft alumni network to find prospective employees and contracts with many of the companies that make computer disks for Microsoft.

“To have diskettes duplicated and assembled, I probably have a dozen vendors to choose from within a 20-mile radius from my offices,” he said. “And the service is very competitive.”

Others profit more directly from Microsoft’s success.

“We’re growing in stride with Microsoft,” said Brian Janssen, the 31-year-old co-founder of Onyx Software in Bellevue.

Janssen and his college buddy Todd Stevenson left Microsoft to build customer-service software that runs on Microsoft Windows NT operating system.

NT’s wild success has helped propel Onyx’s growth from 3 people in 1994 to more than 140 this year. The firm revises its products whenever Microsoft issues a new version of its software.

“We knew NT was going to be a slam dunk, and our whole concept was to build a showcase product using Microsoft technology,” Janssen said.

Even companies that didn’t spin directly out of Microsoft depend in some way on the software giant.

Hall, the 25-year-old CEO of Monolith Productions, formed his company with six colleagues from Edmark, an educational software company in Redmond.

He and his friends were spending their free time at Edmark building games to run on Microsoft Windows when someone at Microsoft heard about their hobby.

Microsoft officials invited them to put together a CD-ROM of games for the Windows ‘95 launch.

So the Edmark gang quit their jobs and went to work at Microsoft as independent contractors. “We saved all the money (we made at Microsoft) and got some office space a mile or two from Microsoft and started our company,” Hall said.

Monolith now employs more than 80 people and has released its first game, called Blood. The company has contracts with three publishers, including Microsoft, to build more games.

Hall admits that Seattle’s rainy weather makes recruiting tough, but it also encourages good work habits.

“When you’re a gamemaker, most of the time you want to be playing at your computer,” he said. “If it’s sunny and nice outside all the time, you have an option. But here, you’re much more inclined to get your creative juices going because you’re not going to go out and dance in the rain.”