Forget India, Outsource to Oregon! –

Throughout 2004, VCJ contributing writers went head-to-head with Lou Dobbs in arguing the merits and pitfalls of technology outsourcing to India. As the year ends, many Silicon Valley VCs are eschewing their holiday shrimp cocktail for first-class tickets to China. Others have just returned, digital photographs in pocket and new office keys in hand. Having a China “story” has become as fashionable as the new BMW 6 Series convertible. Outsourcing to India is so last quarter.

Without arguing the merits of overseas outsourcing (except to say that we believe the comparative advantage of India-based technology development is quickly shrinking to zero), many VCs — ourselves included — continue to seek projects and geographies that offer a competitive advantage, and hopefully in a pond not yet over-fished, but still no more than an hour’s flight from San Francisco International airport. For some Silicon Valley firms, Oregon may turn out to be such a pond.

Go North, Young Man

Why Oregon or the Pacific Northwest? While Air Jordan and Nike might spring to mind when thinking of Oregon, the technology story of the state rests on Tektronix, HP and Intel.

Tektronix, one of the godfathers of American twentieth century high tech, got its start in Oregon about the same time Bill Hewlett and Dave Packard were setting up their garage in Palo Alto. Competing directly with HP (later Agilent), Tektronix established an enduring test and measurement equipment business before diversifying into graphics and other computer technologies.

Intel first branched into Oregon in the early 80s, growing its Hillsboro facility outside Portland to what is now its largest global site with approximately 15,000 employees across seven campuses. Oregon is also the home of Intel’s most advanced semiconductor R&D center in the world, along with the distinction of being Intel’s first 90nm production facility.

Key Intel management is also situated there. John Miner, who heads up Intel Capital, one of the largest VC’s in the world, is based there. So are Andy Bryant, Intel’s CFO, and Pat Gelsinger, its CTO. While the company is nominally headquartered in California, most of its movers and shakers call Oregon home.

Finally there is HP, whose printing and imaging business dominates its Pacific Northwest facilities. Vancouver, Wash., less than 20 miles from downtown Portland, is home to its laser printer franchise.

Further south, Corvallis, Ore., is home to HP’s inkjet center, which has achieved global dominance. More interestingly, expertise developed at HP’s Corvallis campus powers the world’s largest volume Micro-Electro-Mechanical Systems (MEMS) application: inkjets. While VCs dream on about nanotechnology investment, MEMS technologies have immediate applications in semiconductor applications.

Any startup working on MEMS might consider Corvallis a fertile hunting ground for advanced engineering talent in this otherwise nascent area. In addition to MEMS, HP also has one of the world’s most advanced microfluidics R&D centers supporting its ink jet printer business in Oregon as well.

While giants like Tektronix, HP, and Intel weigh large in Oregon’s technology landscape, the state has also proven fertile ground for startup innovation. In fact, many of Oregon’s most successful high-tech companies were born from corporate spinouts. Over the past several decades, Tektronix gave birth to such successes as Mentor Graphics, TriQuint Semiconductor, Planar Systems, Floating Point Systems, and Metheus. Intel also has had its fair share of successful brethren, having spun out Lattice Semiconductor, Integrated Measurement Systems, and Sequent Computer Systems. The astute history student may note that the development of Oregon’s high-tech community is reminiscent of the growth in the Silicon Valley many moons ago, when ex-Fairchild Semiconductor employees seeded the next generation of technology startups.

Manna from Oregon?

Alas, considerable engineering and entrepreneurial talent does not alone make for a fishable pond. The development of successful technology startups in Oregon (and elsewhere) requires early-stage capital, experienced mentoring and a “bridge” to customer and business development centers in high-tech centers including Silicon Valley. Until now, most of these requirements were in short supply. Venture capital was limited to either a handful of established Pacific Northwest venture firms, or a small set of courageous Silicon Valley firms that parachuted in for select deals. On their way back home to California, they passed a sign created long ago by former Oregon Gov. Tom McCall. It said, “Thank You for Visiting Oregon.” In a time of isolationist ethos, the emphasis was not added. For years, many of the few Silicon Valley VCs who ventured north followed McCall’s advice and always booked a round-trip ticket.

Realizing that a mature ecosystem doesn’t develop by accident, Oregon is taking steps to mobilize its high-tech resources and invite VCs to spend more time in the state. In 2000, Oregon launched ONAMI (the Oregon Nanoscience and Microtechnologies Institute), a collaboration between Oregon’s high-tech community, the Pacific Northwest National Laboratory and Oregon’s public research universities-Oregon State University, Portland State University and the University of Oregon. Having funded more than $75 million in research in areas including nanoscience, materials characterization, microfluidics and microfabrication, ONAMI is busily commercializing its technology with the backing and support of companies like HP, Intel, Pixelworks, and ESI. ONAMI Executive Director Skip Rung, himself an HP alumnus who once oversaw HP/Corvallis R&D, has an open invitation to VCs interested in ONAMI projects: Rung also serves as a bridge to the Corvallis (HP) high-tech community, itself eclipsed somewhat by the Portland-area (Intel) one.

Experienced angels and investors are also taking a lead role in building out the state’s high-tech entrepreneurial community. Jim Huston, an ex-Intel executive and veteran of the Oregon high-tech community, recently retired after 20 years at Intel including 10 years as director of Intel Capital. Sharing his extensive operational and deal experience, he is teaching business classes at Portland State and is an adjunct professor at Lewis and Clark Law School in Portland while also serving on the Commercialization Board of ONAMI. But mostly Mr. Huston is devoting time to help build Oregon’s next high-tech successes. Huston believes Oregon-based R&D skills rival some of the world’s greatest R&D centers: “Between Intel, HP, Tektronix, and ONAMI, Oregon offers high-tech skills that exist in very few places in the world.” He adds, “This is a unique place. Unlike Silicon Valley, Oregon offers affordable housing, a stable work force with engineers who are less likely to job-hop, and a sense that people here still have something to prove. After many years of traveling to the Bay Area, people at Intel in Oregon and at Oregon startups are still a bit humble and work just as hard, if not harder, than they do in the Bay Area.” The lack of a state-wide sales tax couldn’t hurt either.

Not Without Pitfalls

Investing in Oregon (like in any geography outside one’s own) takes some experience. While the engineering talent pool is immense, some other talent is lacking. Technology marketing and business development skills are sometimes harder to find locally. Service providers such as marketing, PR, or law firms are a bit less experienced in the art of the latest Silicon Valley deal. Before any Silicon Valley firm ventures to Oregon, it must understand the area’s strengths, but also it weaknesses. A successful syndicate would combine the skills, network, know-how, and relationships of an established Silicon Valley firm with a local venture capitalist.

Though most are very small, there is no lack of local venture capital firms, and their number is likely to grow. Earlier this year, the Oregon State Legislature passed a bill enabling the establishment of a $100 million pool to be allocated to venture firms with an interest in the state. Many local firms are expected to apply.

Tech Opp

For the time being, several larger Seattle venture firms have taken their southern neighbor under their protectorate. Unfortunately, most Seattle-based firms have traditionally focused on consumer offerings and software. Relatively few have specialized in semiconductor, imaging, EDA, test equipment or other building blocks of the Oregon high-tech community.

So why isn’t everybody rushing to book the next Southwest Airlines flight to Portland? For starters, many adhere to a 20-mile rule: If a company is not within 20 miles of their office, it doesn’t deserve much attention. Oddly enough, many of the same VCs wouldn’t think twice about a wireless deal in San Diego or Irvine, both of which turn out to be just as far.

Perhaps instead, many find it too early to invest in Oregon and are rushing instead to maturing Beijing. Regardless of motive, Silicon Valley VCs should occasionally look north-not just west and south-when evaluating their next hot deal. That pond has a lot of fish.

Bart Schachter and George Hoyem are managing partners with Blueprint Ventures, a seed-stage venture capital firm. Schachter focus on communications and IT infrastructure, wireless technologies, nanoelectronics, software and communications semiconductors. Hoyem focus on software, wireless, securitiy and IT and communications infrastructure. Schachter can be reached at