Madrona Raises $300M Sixth Fund to Back More Northwest Startups
The biggest backer of Pacific Northwest technology startup companies, Madrona Venture Group, has raised a $300 million sixth fund, which it plans to invest in about 30 local startups during the next three to four years.
Madrona follows Ignition Partners and Founders’ Co-op in announcing fresh investment funds in the last two months, giving local entrepreneurs a view of ample early-stage capital for their startups, managed from their own backyards.
Now entering its third decade of investing in many of the most promising technology companies to emerge from the region, Madrona plans more of the same with Fund VI, which is the same size as its predecessor, raised in 2012. That means the majority of the companies it backs will hail from Washington, Oregon, and British Columbia. Madrona usually invests early and stays committed, says managing director Matt McIlwain.
“We believe in early stage venture, and we also believe that you can add a lot of value to help make companies successful over the long term,” McIlwain says. “Our strategy is to invest in seed rounds and Series A rounds, initially… and roll up our sleeves and over sometimes a decade or more, help a company become as successful as it can be.”
Unlike Ignition, which is based in Bellevue, WA, and Palo Alto, CA, and invests only in startups targeting other businesses as customers, Madrona invests in consumer and business startups.
McIlwain says areas of interest include cloud computing, dataware, virtual and augmented reality, and the intersection of the digital and physical worlds—all areas of historic or emerging strength for Seattle.
If you’re going to be a geographically focused venture fund like Madrona, the geography you focus on better have a deep bench of entrepreneurs to invest in, and talented people willing to go to work at a startup.
McIlwain says Madrona sees a plethora of competent company founders worthy of backing, many of whom hail from Amazon and Microsoft. Nearly half of the startups Madrona backed out of its fifth fund had previously worked for one of the region’s two tech giants. These include Boomerang Commerce, Pro.com, Evocalize, and Peach—all by former Amazon employees. Former Microsofties founded other Madrona investments Highspot, 2nd Watch, Jobaline, Shippable, Icebrg, and Algorithmia.
That hasn’t always been the case. Conventional wisdom—or at least a common lament—in the Seattle startup community has been that Microsoft and Amazon alumni haven’t done enough to invigorate the tech economy by launching (or funding) startup companies.
“There tends to be some cycles in terms of when people are more inclined to leave those companies and start businesses,” McIlwain says. The 1990s, for example, saw a wave of companies such as Real Networks and Expedia founded by Microsoft alumni.
Today’s roaring tech economy might be helping drive another such wave.
“It’s a positive macro economic climate with a lot of disruptive change going on in the technology world, and I think there’s some talented people—usually people that are probably three to seven years into Amazon or Microsoft—that they’ve got an idea, and got what it takes, and are willing to take the risk to go start something and build something really amazing,” McIlwain says.
That fits with a maturing Seattle tech ecosystem, filled out over the last decade with significant tech middleweights such as Tableau Software, Expedia, Concur (recently acquired by SAP), and more recently the proliferation of engineering branch offices opened by pretty much every significant tech company worth mentioning.
That, says McIlwain, makes it easier for people to decide to move to Seattle for a startup, which wasn’t the case when he started investing at Madrona 15 years ago.
“It was a much bigger choice,” he says. “What happens if I come to Seattle and that startup doesn’t work out? Now there’s so much diversity. Not just the big anchor tenants here like Microsoft and Amazon, but all these other offices, that you really can be comfortable and confident, that if the startup world isn’t the right fit for you, or this startup doesn’t work out, there are other great places for you to go and apply your talents.”
Beyond talent, the proliferation of tech companies with a physical presence in the Seattle area helps local startups access potential partners and customers, as well as information about the broader tech industry.
“Your kids play soccer with the kids of parents who work at Facebook and Google, you just get a different level of insights from having those personal relationships,” McIlwain says.