Madrona, Amazon Bet $4.4M on Animoto, a Startup With Roots at Bellevue High School

6/18/09Follow @gthuang

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know it at the time. In the spring of 2007, he talked with Madrona Venture Group’s managing director Matt McIlwain, as part of Madrona’s due diligence on investing in Smartsheet—an Internet company that makes it easier for geographically dispersed teams to collaborate. (Animoto was a Smartsheet customer—these relationships go in every direction.) Animoto didn’t have a real product yet, but McIlwain made a note of the interesting startup.

“We were super impressed with them,” says McIlwain (another member of the Dartmouth mafia). “We agreed to stay in touch.”

Animoto kept gaining momentum, receiving public praise from Amazon CEO Jeff Bezos at the Y Combinator Startup School at Stanford University, shortly before Amazon announced its investment in the company in May 2008. By summertime, Animoto had released its product for businesses and professional photographers—a key market segment that has really taken off. Its product competes with sophisticated software from Adobe and Apple, but its advantage is that it’s relatively cheap, easy to use, and Web-based. Smaller companies like Slide and RockYou make Web-based slideshow software, but their offerings don’t quite match up. (For an outside opinion, I asked Dan Shapiro, co-founder and CEO of Seattle-based Ontela, a mobile photo-sharing startup, for his thoughts on Animoto. “I played with the app and it’s really cool,” he said. “It made even my bad pictures look good.”)

Last fall, Jefferson started to look for ways to take the company to the next level in terms of revenues and distribution. As the economy collapsed, he says, “we really made a push to cash-flow positive.” At the same time, he started looking opportunistically for venture capital. “In my head, I always thought we’d take Silicon Valley venture capital,” Jefferson says. But in his tour of the Bay Area, New York, and Seattle firms, the best match turned out to be Madrona. “We felt like there was a good culture fit,” Jefferson says, adding that in conversations with Madrona portfolio CEOs, he heard that Madrona acts more like a partner and mentor than a boss. The venture firm has also been very up-front, he says. “Even during the pitch process, we felt there was a lot of transparency. We always knew where we stood.”

McIlwain, for his part, says he’s thrilled with the new investment in Animoto. “They’ve built a really high-quality and simple-to-use product. They’ve been able to get massive adoption. Most importantly, they’ve got almost 100,000 people paying for the product,” he says. “It’s an unusual combination for a Web 2.0 company. On top of all that, this is a cash-flow positive business [since December].”

So why take venture funding at all? Jefferson says he is looking to grow Animoto into a company that sells to millions or tens of millions of users. “We want to crank up our distribution strategy,” he explains. McIlwain notes, “There’s an even bigger opportunity around the notion of multimedia storytelling delivered online.” He adds that one goal is to “invest in some really compelling, mutual-win partnerships.” Neither of them would give more specifics about such partnerships on the record.

Animoto currently has 18 full-time employees—a mix of technologists, designers, and producers. Most are in New York, but Jefferson remains in San Francisco. He and McIlwain say there are no plans to move the company to Seattle, despite its deep local roots and investors. I asked McIlwain whether the Animoto deal represents a departure or shift in Madrona’s strategy of investing in early-stage Northwest companies. “We’re open minded,” he replied. “We have to bend the rules a little bit for the right opportunity, and the right team.”

Gregory T. Huang is Xconomy's Deputy Editor, National IT Editor, and the Editor of Xconomy Boston. You can e-mail him at gthuang@xconomy.com or call him at 617-252-7323. Follow @gthuang

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