SEATTLE — Typically, tech entrepreneurs come up with start-up ideas and bring them to investors for money. A new investment firm in Seattle, backed by from some prominent names in technology and venture capital, plans to come up with start-up ideas on its own.
The firm, Pioneer Square Labs, calls itself a “start-up studio” and on Thursday announced that it has raised $12.5 million to begin building its fledgling businesses. The money for the Seattle-based firm is coming from more than a dozen other venture capital firms and 50 angel investors, including Bezos Expeditions, the investment firm of Amazon’s chief executive, Jeffrey P. Bezos, and Rich Barton, the founder of Zillow, Expedia and other companies.
Foundry Group is the venture capital firm leading the investment in Pioneer Square Labs, along with Greycroft Partners, Madrona Venture Group, Maveron, Menlo Ventures, MHS Capital, Sinclair Digital Ventures, Techstars Ventures, Trilogy Equity Partners, True Ventures, Voyager Capital and Vulcan Capital.
In a phone interview, Greg Gottesman, a former venture capitalist with Madrona and one of the founders of Pioneer Square Labs, said the firm would aim for start-up ideas that it can test in the market, most likely ones with a consumer Internet theme. The firm’s own partners will further develop the most promising ideas into start-ups, recruit outside talent to run the companies and then help spin them out into independent businesses funded by venture firms.
Mr. Gottesman said the venture firms investing in Pioneer Square Labs won’t be guaranteed a shot at investing in the firm’s start-ups, but they will have early knowledge of its activities. “We’re not trying to supplant them in any way,” said Mr. Gottesman. “We’re trying to be another source of deal flow.”
Others are trying a similar approach to making start-ups in-house, including another Seattle firm based in the city’s historic Pioneer Square neighborhood, Ivy Softworks. Idealab, founded in the mid-1990s in southern California, was one of the earliest tech start-up studios.
Even established venture capital firms dabble in making start-ups in house. While at Madrona, Mr. Gottesman formed an in-house start-up studio called Madrona Venture Labs, where he helped create a start-up called Spare5, which offers a mobile app that lets people earn small amounts of money for manually classifying photographs.
The other partners at Pioneer Square Labs include Geoff Entress, an angel investor in Seattle; Mike Galgon, who co-founded aQuantive, an Internet advertising firm that Microsoft acquired for $6 billion in 2007; and Ben Gilbert, a co-founder of Madrona Venture Labs.
Mr. Gottesman said the firm has two start-up ideas it is actively working on at the moment, but it fully expects to end up discarding most of its projects. “With the labs model, most of these things fail,” he said. “We’re wrong 80-plus percent of the time. We’ve only been doing this a month and we’ve already killed two ideas. It’s hard.”