Not a week goes by that I don’t have this conversation with a local founder. “Why is it so hard to raise early stage capital in Oregon…?” or “Why is there so much risk aversion around here…?” or “Why am I getting Series B due diligence questions for an Angel sized check…?” And all of those questions are answered with a very similar response: It’s a vicious cycle.
And while I’ve rattled off this answer in any number of ways, I’ve never really taken the time to write it down.
Until now.
Why now…? Well for one, I’m tired of repeating myself. But I’m also motivated to capture this because I’m fairly certain that this isn’t a problem that is unique to Portland. Or Oregon. I’m sure it’s similar in any number of other communities. And so I’m capturing it with the hopes that it does two things: 1) I hope it puts a finer point on the early stage capital dynamics around here for local founders and 2) I hope it helps other communities recognize that their early stage financing challenges are not unique.
Long story short, I’m hopeful that by committing this to a digital page, it at least gives us a starting point to discuss it, highlight opportunities to fix it, and look for ways to improve things around here. Rising water and all that.
(Maybe cue up The Downward Spiral by Nine Inch Nails. This could take a minute.)
Let’s get into it…
Local early stage funding is trapped in a vicious cycle. And you’re soaking in it.
tl;dr
Let’s start with the obvious: There isn’t a lot of — if any — local, risk-tolerant capital in Oregon. Never has been.
So when you start a company here — at the exact moment you’re most energized and passionate about what you’re building — you’re not building. You’re gallivanting. You’re tincupping around Seattle and the Bay Area, pitching investors who have never been to Portland. Trying to sell them on both the vision for your company as well as the reasoning as to why you’re building in Oregon.
You’re spending your best “early stage startup founder” energy and excitement on planes and in lobbies talking to potential investors instead of talking to potentiaal customers and building your product.
By the time you actually raise — if you raise — you’ve already lost some of that early founder energy. Some of that momentum. All of that time on the road. All of that searching and scraping together checks. The fire is most definitely dimmer than it was six months ago — or worse yet, a year ago — when you started looking for capital. And you’ve just signed up for another marathon sprint. Even though you’re still trying to catch your breath.
Even worse…? That slower start compounds. You grow more slowly. You hire more slowly. You get to market more slowly. It takes you much much longer to hit that inflection point. And to raise follow on.
Lather. Rinse. Repeat.
Which means a liquidity event — if it happens at all — takes a lot longer too. We’re not talking five or seven years. We’re talking twelve to fifteen.
And here’s another wrinkle. Those exits? They’re usually acquisitions — not IPOs. Which means the capital gets distributed to a very limited group of folks — like founders and investors — rather than every employee. And most of those investors…? They’re out of state. They’re in Bay Area. They’re in Seattle. They’re back east.
The liquified capital doesn’t impact us here, by and large. It lands wherever the people writing the checks are sitting. It goes back to where that risk tolerant capital came from. Rather than recycling through our community.
And the founders? After fifteen years or more of grinding? They’re exhausted. They’re not looking at the ecosystem thinking “I can’t wait to do that again!” Instead, they’re questioning their role as a founder, “I don’t know if I have another fifteen years in me to do that again 😅”
So when they finally have wealth of their own — capital that could theoretically flow back into the ecosystem and fund the next generation of startups — they get extremely careful with it. They get risk averse. Some folks might say, “Stingy,” even. (I mean, I wouldn’t. But some folks might.) And honestly, who can blame them? The system nearly broke them. Why would they put their hard-won capital back into the machine that made it so difficult for them to succeed in the first place?
So they don’t invest in the next generation. Which means that generation of startups still doesn’t have early local capital. Which means the next founder is right back where the last one started — full of energy, no local capital, booking a flight to San Francisco.
Return capital doesn’t come back because exits are rare. Exits are rare because companies are underfunded. Companies are underfunded because return capital doesn’t come back.
Round and round and round.
Every once in a while, there’s a glimmer of hope
In December 2014, Tripwire got acquired for $710 million and New Relic went public — in the same week. I wrote at the time with hope that “maybe, just maybe, we’ll see a little bit of this wealth reinvested in the Portland startup scene.”
I was so hopeful. It felt like the cycle might actually break. New money, new talent, new ideas on the streets. That’s what’s supposed to happen after a liquidity event. That’s how the flywheel spins in the other direction.
And some of it did happen. But not enough. Not nearly enough to shift the structural reality. Because one week of exits — even a historic one — doesn’t fix a pipeline problem that’s been building for decades.
And then we took the opportunity to make the vicious cycle even more vicious
Which brings us to SB 1507 and the QSBS mess. You’ve heard me on this. At length. (At significant length. Ad nauseam. I know.) The governor signed it on April 9 — and yes, she said something that matters, so read that post — but the signing doesn’t fix the cycle.
But here’s the thing I didn’t say clearly enough in those posts: QSBS taxation doesn’t just add a new problem. It accelerates the vicious cycle. It takes the one remaining incentive for local investors to reinvest locally — the tax exclusion on gains from holding small business stock for five or more years — and removes it. But not for outside capital. Just for us. Just for Oregonians.
Talk about exacerbation. The vicious cycle isn’t just continuing. It got a legislative turbo boost.
But it has worked here. Once.
You know what’s even more maddening? We have proof that the cycle can break.
Oregon Venture Fund invested in a little company called Jama Software. Jama bootstrapped. They took about $1 million in angel funding, largely from OVF. They built. They were patient. And in March 2024, they were valued at $1.2 billion. A 60x return for OVF.
That’s what local, patient, long-horizon capital can produce. That’s the cycle running in reverse — local investment creates a local success, which generates returns, which can fund the next round of local companies.
It happened.
But it happened once. And once isn’t a pattern. Once is an anecdote. We need it to happen again and again and again until the cycle flips — until there’s enough local capital cycling back into the ecosystem that a founder starting a company in Portland has the same shot at early-stage funding as a founder in Seattle or Salt Lake or wherever.
But it’s going to take some pretty courageous investors to do that. And to break us out of this vicious cycle. For good.
