Madrona’s Next Challenge: Making Seattle a Financial Technology Hub

This article appears in print in the October 2018 issue. Click here for a free subscription.

At a recent open house in Madrona Venture Groups new Create33 space, among the guests sipping wine and checking out the incubators Puget Sound-view boardrooms were a representative of the Singapore Economic Development Board, responsible for enhancing that city states already enviable position as a financial hub; the Seattle consul for the United Kingdom, which is eager to reach out to new partners amid the uncertainties of a post-Brexit world; representatives from local investment firms Arch River Capital and Aptitude Investment Management; and the founder of a Seattle software-as-a-service startup called Noonum.

What do they have in common? They were invited as part of Madrona Venture Group cofounder Tom Albergs quest to establish a strong financial technology cluster in the Seattle area. He believes this step is important in raising the Seattle region to a first-tier player in the world of venture capital.

Alberg did this sort of thing before when he helped establish ACES Northwest Network, a regional effort to get city planners to consider autonomous vehicles more aggressively in their plans. Madrona has yet to invest in any companies in the AV sector, which remains small in Seattle, but ACES will now operate from an office at Create33.

Building a fintech sector could be equally challenging. Seattle has a minuscule share of the $1.45 trillion financial services generated in the United States. The Global Financial Centres Index, a well-regarded ranking of the 100 most competitive financial centers around the world, puts San Francisco at eighth, Boston 10th and Vancouver 17th. Seattle doesnt even make the list.

Most large Seattle-area banks were acquired decades ago by national banks such as Wells Fargo and Bank of America. And as other large institutions have been established in Seattle over the years, including Sharebuilder, WAMU and Russell Investments, they, too, have been acquired.

But changes are afoot that could give Seattle another shot at establishing a foothold in this sector or at least the companies that are transforming it. For one thing, the global financial centers that were once so powerful seem to be losing some of their allure.

AllianceBernstein, an asset manager with $550 billion under management, recently moved its headquarters from New York to Nashville, Tennessee, underscoring a growing sense that financial-services giants no longer feel a need to be based in a major financial center.

You dont have to be on Wall Street to do financial service, says Rex Hughes, whom Alberg hired as Madronas emerging markets adviser. Hughes played a key role in helping to establish the ACES Network for autonomous vehicles and is now leading the effort to help build a fintech cluster.

Hughes thinks Seattle has many of the necessary components now. Some of the financial institutions that were acquired, including Sharebuilder, Russell Investments and Threshold, still have major operations in the region.

And there is already a small but growing base of fintech companies in the area. They include Lighter Capital, which helps early-stage companies raise funds and has already raised $140 million in funding; Avalara, which helps companies deal with sales taxes; Finagraph, which offers financial intelligence tools; Gravity Payments, which offers credit-card processing and payment solutions; PitchBook, the nations leading provider of data analysis on equity and venture capital industries; Remitly, which helps people send remittances to places like Mexico and the Philippines; and Pushpay, which makes donations to nonprofits easier. Seattle also is well represented in two rapidly growing areas that are closely associated with the financial sector: blockchain and cybersecurity.

Another important advantage is the large number of Seattle tech companies for whom financial services play a critical role. Amazon, Microsoft, Redfin and Starbucks, for example, are all making substantial investments in new payment systems, lending systems and other fintech products.

Amazon has 67 fintech job postings in the Seattle area. An animated video lures recruits by offering the opportunity to work on a fintech team launching Amazon into a multitrillion-dollar company.

Given Seattles tech talent, Madrona could yet succeed in making the region an attractive place for fintech companies to locate.