The Man Behind Madrona’s Investment in Searchandise: Lessons in VC, Company-Building, and Selling to Microsoft

4/20/10Follow @gthuang

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it’s very early,” he says. (It’s possible Amazon is working on something like this itself, but sources I’ve talked to outside the company don’t think so yet.)

Madrona Venture Group is known for backing Amazon, as well as other tech companies including Isilon Systems, Mercent, AdReady, Farecast (now part of Bing Travel), and iConclude (now part of Hewlett-Packard). The VC firm maintains a strong relationship with Amazon; Madrona co-founder and managing director Tom Alberg remains on the board of the e-commerce giant.

McAndrews was quick to point out that Searchandise Commerce is “not competitive with anything” else in Madrona’s portfolio; that the startup can still be considered early-stage because of its strategic shift in the past year; and that the East Coast deal doesn’t signify any desire to diversify geographically. Madrona remains committed to Pacific Northwest companies, he says, but it is open to making investments in other parts of the country. In this case, the deal came about because of “pre-existing relationships with people” in McAndrews’s network. “Otherwise we might not have seen this,” he says.

Madrona looks at three main things when it evaluates companies, he says: What’s the product, what’s the size of the market opportunity, and who’s on the team. “An entrepreneur should hit on all those things,” McAndrews says. “I look for someone who comes across as self-aware of the risks. I expect them to say, ‘This is why I’m excited about it, here’s the team I’m starting to put together, this is why I believe it can be a very significant opportunity, and this is what we’re seeing so far. Here are the customers. Here are the risks. Here are other companies who tried and failed, and others we’ll run into.’ An honest assessment that leads me to believe this is a CEO who will be upfront with us over time, and not have his head in the sand.”

I asked what broader lessons he brings from his deep experience in Internet advertising. One is a “long-term vision of one view of the customer,” he says. “Whether online or offline, you want to have one view of the consumer.” In other words, the real and virtual worlds are increasingly merging when it comes to retail. Another point is that “digital advertising and media are going to be around for … Next Page »

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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  • http://www.dailygrommet.com Jules Pieri

    As a Boston e-commerce startup founder, it’s great to see Madrona investing in an e-commerce-related company in Boston. (You are right…I had not heard of Brian McAndrews…thanks for the education.) Given Madrona’s Seattle location, and ties to Amazon, they can actually add new and meaningful expertise to the Boston entrepreneurial ecosystem. I look forward to seeing what Searchandise develops over the next year with this funding support, and to how Brian McAndrews takes advantage of his new Boston ties.