One could argue, of course, that Microsoft is a hulking monopolist, but it can't be denied that the world's largest software developer also has become a bustling hatchery for both talent and money for Seattle's mushrooming startup scene.

It wasn't always that way, of course. "Four or five years ago, Microsoft wasn't having that much impact on Seattle," says Tom Alberg, managing director of Madrona Venture Group. The $417 billion software giant wasn't keen on investing locally for fear of funding companies that would lure away Microsoft employees.

But now, Mr. Alberg says, not only is Microsoft investing in local venture funds, many of its execs are either leaving to start their own companies or putting their Microsoft money into other startups as angels.

As Seattle begins to catch up with Silicon Valley's entrepreneurial culture, Microsoft as a training ground -- and source of wealth -- has become more important than ever.

EVERYTHING MUST CHANGE

Traditionally, Seattle's economy has played off its seaside location and nearby Washington forests, which fuel the shipping and lumber industries. Boeing was the area's biggest employer for years. In the 1970s and 1980s, Seattle turned up the volume on telecommunications and biotechnology, with the McCaw Communications companies increasing their presence in telecom and the University of Washington turning out impressive biotech companies.

Microsoft, founded in 1978, used to have the same role as many large corporations. Local engineering graduates of the university would join Microsoft, and smart engineers from across the country would relocate to the area for a well-regarded job at the company. Once there, most people would stay for years, retiring early on the value of their stock options.

It used to be the case that Microsofties wouldn't jump ship before putting in at least ten years, says Bill Miller, a GP at Olympic Venture Partners and a former Microsoft employee himself. These days they often leave after just five years, taking their original options packages and heading off to the next big thing, he says. In Olympic's current $150 million fund, no less than five of its ten investments are companies founded by former Microsoft employees.

One of the most notable ex-Microsoft teams here is Ignition, the holding company created to build wireless Internet startups. Ignition CEO Brad Silverberg, a former senior VP at Microsoft, helped build Microsoft's Windows and Internet businesses. He and seven other Microsoft colleagues joined two senior McCaw execs to form Ignition in March, with $40 million from the founders and $100 million from Qualcomm, Softbank Venture Capital, and Madrona. Last week, the company announced its first investment -- part of a $13 million second round for Etrieve, a mobile email company based in Portland.

Mr. Silverberg says that Seattle's technology and talent infrastructure is just now catching up with Silicon Valley. Certainly, the amount of capital flowing into startups is reaching a caffeinated pace. In 1999, 51 Washington-based companies raised $248.1 million -- more than triple the $68.7 million raised the prior year by 31 companies -- and placing the state second only to California, whose startups raised $1.3 billion, according to Venture Economics, a venture capital research firm.

COMMUNITY STANDARDS

Many local venture funds have significantly increased the size of their most recent funds, doubling or tripling prior funds. For example, consumer-focused Maveron's first fund, raised in 1998, drew just $75 million -- but its second fund, which closed in March, came in at $340 million, mostly from individuals. One reason for the uptick is the "Microsoft effect," but the primary reason is that the Seattle VC business has matured and is showing results that are attractive to investors.

But with the growth of Seattle venture funds have come signs of change in the normally chummy VC community. Up to now, local VCs say, the venture capital community has been the antithesis of Silicon Valley's. VCs here use words like "collegial," "long-term focused," and "quality of life." Madrona strategic director Oren Etzioni goes so far as to call it "kinder, gentler venture capital." Maybe it's all the rain, but the startup scene does seem to be a little more mellow here.

Microsoft's influence may change that low-key pace, says Robert Nelsen, managing director of Arch Venture Partners. "Nobody works harder than [ex-Microsofties], and that culture is expanding," he says. Those energies are being put to work in wireless technology (especially at Ignition) and biotech (at firms such as 17-year-old Olympic and Arch, which specializes in spinning out university technologies).

As the technology landscape shifts away from Microsoft's traditional domain -- the personal computer -- other local corporations could become the new incubators for tomorrow's entrepreneurs, such as e-tailing giant Amazon.com, media magnet Real.com (founded by ex-Microsoft VP Rob Glaser), and content distributor Infospace.

There's no question that Microsoft will continue to attract the area's brightest technology workers, as a company run primarily by technologists, says Madrona managing director Greg Gottesman. The only question, says Ignition's Mr. Silverberg, is what stance Microsoft will take toward startups in the future. "To what extent will Microsoft create opportunities for others?" he wonders.

In the meantime, local VCs are more than happy to work with cash-rich, techie-heavy Microsoft. Microsoft is a limited partner in funds at Madrona and Olympic. The local connection means a lot to VCs like Madrona's Mr. Etzioni, who says that the smaller funds and more provincial scene mean that VCs tend to work closely together, collaborating on deals and "not trying to screw [entrepreneurs] on the term sheet."

"We weren't dropped in to make a lot of money here," Madrona managing director Will Glasgow chimes in. "We have a stake in building the community."

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