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Updated Monday, December 3, 2012 at 12:09 PM

With wind at their backs, Seattle startups ride cloud of innovation

By Brier Dudley
Seattle Times technology columnist

It’s revenge-of-the-nerds time in Seattle.

The cool kids in Silicon Valley usually get all the attention. But the tables are turning, now that it’s getting harder to make a killing with a clever app or website.

Lately, the Valley’s been fretting about a slowdown in venture funding for consumer Web companies.

Venture capitalist Fred Wilson opined last week that the consumer Web has finally matured and the big players like Google, Facebook, Amazon.com, Microsoft and others are “starting to suck up a lot of the oxygen.’

In a blog post, Wilson wrote that “consumer behaviors are starting to ossify on the Web, and it is harder than ever to build a large audience from a standing start.”

Meanwhile, Seattle has been steadily growing a promising crop of business-oriented startups with half the glamour and perhaps twice the promise.

These companies don’t get the buzz of the Valley’s groovy consumer startups. But those that survived the recession and steadily built strong businesses are moving into position for big breakouts over the next year or two.

The backdrop for this is the emergence of Seattle as the world leader in cloud computing. Tech ventures small and large are building the infrastructure, tools and services that are modernizing the business world and managing the massive amounts of data that’s being generated.

That environment is drawing talent and investors now that enterprise software is back in favor. Evidence of this came in a surge of financing deals over the past month as a handful of tech startups in the area raised collectively more than $100 million.

“We’re going to back 10 years from now, and we’re not going to believe how successful the Pacific Northwest has been in terms of growing great businesses,” Matt McIlwain, managing director at Madrona Venture Partners in Seattle, told me last week.

Here’s a look at some of the area companies moving into pole positions:

Big Fish Games: The steady Seattle casual-games giant is hunkering down and investing heavily in new businesses, which could position the company to go public or be acquired within two years.

Big Fish just named Dave Stephenson its president, freeing up founder and Chief Executive Paul Thelen to focus on its new initiatives.

Stephenson formerly led finance operations for the biggest group at Amazon.com, its North American retail business. He joined Big Fish as chief financial officer last year.

Big Fish produces and publishes hundreds of games a year and distributes them on multiple platforms. Its games may not be household names, but they’re good enough to draw a huge, paying audience. That provides more consistent growth than chasing big hits.

Sales grew 30 percent last year and this year will exceed $200 million. Its global head count is about 700, including 550 in Seattle, where it added nearly 100 employees over the past year.

Big Fish considered going public last year but held off because it was planning big investments in its new cloud gaming platform. Thelen said the investments will lead to “hypergrowth” but wouldn’t have gone over well on Wall Street.

“We saw a lot of opportunity to emerge as a much bigger company through this forward investing in these new businesses we’re pursuing now,” he said.

Big Fish plans to spend perhaps 18 to 24 months getting the new ventures up to speed. They include the expansion of its cloud gaming platform, new “free to play” games supported by microtransactions and expansion in Asia.

“When we emerge is the time we’d consider an acquisition or an IPO, but right now we’re in a build phase,” Thelen said.

Smartsheet: Bellevue-based Smartsheet is announcing Monday that it has raised $26 million to accelerate its business providing online spreadsheets. The funding came from Madrona and Insight Venture Partners.

More than 20,000 organizations are now using Smartsheet’s online service to collaborate and share information.

Chief Executive Mark Mader expects his team will grow from 40 to 140 over the next 18 months. Smartsheet is cash-flow positive and saw triple-digit sales growth over the last three years.

“The opportunity we see here, it’s substantial,” he said.

Mader wouldn’t say much about plans to go public or be sold. But he acknowledged that large software vendors are interested in adding new products that are used by workers at every level of a company.

Those companies have to innovate “or find technologies that have huge reach and touch users within business.”

Qumulo: Seattle data-storage startup Qumulo surfaced last week with $24.5 million in initial funding.

The amount of data that companies need to store will grow 50 times by 2020, yet corporate IT budgets and staffing are expected to grow only about 50 percent over that period, Qumulo Chief Executive Peter Godman said.

“That situation — this massive increase in data and a fairly modest increase in resources — requires fundamentally better and more efficient technologies,” he said.

Qumulo is a fourth-generation Seattle tech company. Godman came from Isilon, a data-storage company started by veterans of RealNetworks, which was started by a Microsoft alum.

Isilon was sold to EMC for $2.25 billion in 2010.

At last week’s state Innovation Summit, the president of EMC’s Isilon group said the business has expanded from 500 to 1,300, and sales have more than tripled since the acquisition.

Qumulo is keeping its product plans under wraps until next year, but in the meantime it’s using its newfound capital to hire like mad. Godman expects head count to grow from 18 to 68 over the next 18 months.

Brier Dudley’s column appears Mondays. Reach him at 206-515-5687 or bdudley@seattletimes.com






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