Madrona Venture Group raises $345M for 8th fund, its largest ever, and $161M for 2nd later-stage fund

Madrona Venture Group managing directors from L to R: Tim Porter, Matt McIlwain, Len Jordan, Tom Alberg, S. Somasegar (Soma), Hope Cochran, Steve Singh, Scott Jacobson, and Paul Goodrich. (Madrona Photo)

Madrona Venture Group has raised more than $500 million in fresh capital that the 25-year-old Seattle venture capital firm will use to bankroll both early and later-stage startups. It marks the firm’s largest fundraising effort.

Madrona reeled in $345 million for its eighth fund — money that it will use to invest in 35-to-40 Pacific Northwest tech startups over the next several years. It also raised $161 million for its second “Acceleration Fund,” designed for more mature companies located across North America.

The fresh capital comes on the heels of Madrona’s $300 million seventh fund raised in 2018, and $100 million raised last year for the inaugural acceleration fund.

The new funds reflect Madrona’s continued bet on the growing Pacific Northwest tech ecosystem, as well as the fruits of returns from investments in companies such as Accolade, Redfin, Snowflake, Heptio, Xnor.ai, Lattice Data, and a flurry of others.

“It highlights just how much recognition there is that Seattle is a place to birth companies and to start companies, but also a ‘Seattle mindset’ in terms of helping build companies at any stage,” said Madrona Managing Director Matt McIlwain.

Earlier reports on the new funds — based on SEC filings released this week — did not detail Madrona’s full fundraising efforts. GeekWire caught up with McIlwain on Wednesday to get more details.

The Madrona team. (Madrona Photo)

Even as Madrona increasingly makes bets on later-stage companies beyond the Pacific Northwest, McIlwain said it is still very much committed to backing smaller companies in its backyard.

“We’re tripling down on that core thesis we’ve believed in for 25 years,” he said.

Madrona Managing Director Matt McIlwain. (Madrona Photo)

More than 90% of investments made out of Madrona’s seventh fund have gone toward seed and Series A deals. McIlwain said the firm has invested less than half of the seventh fund to date, partly because it reserves capital to support portfolio companies as they grow.

Madrona will look to make investments ranging from $500,000 to $8 million out of the eighth core fund, and from $8 to $12 million for the second acceleration fund.

McIlwain described the acceleration fund as “additive.” He said it leverages both Madrona’s own experience partnering with large companies such as Smartsheet and Impinj from their earliest days, as well as the collective community experience and knowledge from its partners in the Seattle ecosystem.

That includes tech giants such as Microsoft and Amazon — Madrona co-founder Tom Alberg was an early investor in the retail and cloud computing behemoth — as well as its partnerships with the University of Washington’s computer science school and the Allen Institute of Artificial Intelligence (AI2).

Madrona has proven its ability to back nascent startups that become huge companies. Its track record for investing in later-stage companies for the first time, especially those outside of its backyard, is not yet as clear. Recent investments out of the acceleration fund include companies such as VNDLY; Clari; and Coda.

Madrona will continue following its core investment themes that include the intersection of machine learning and life sciences; next-generation software infrastructure; low-code or no-code platforms; the digital transformation of consumer experiences; “intelligent applications;” and “the future of work.”

The $345 milion fund is one of the largest capital raises for any Pacific Northwest venture firm, and provides more early-stage funding for a region frequently criticized for its lack of investment options.

Madrona is nearly synonymous with Seattle’s venture capital scene — a powerhouse so strong that some entrepreneurs fret over the influence it holds as a funding gatekeeper.

“We’re super curious and we’ll meet with really anyone. We love taking first meetings,” McIlwain said. “We view it as our job to add value to any company and any entrepreneurial team that wants to take the time to meet with us.”

In recent years Madrona has faced more competition on deals from newer firms such as Flying Fish Partners and Pioneer Square Labs — co-founded by former longtime Madrona managing director Greg Gottesman. Out-of-town investors also are more frequently investing in Seattle-area startups.

“It is good for the region to not only have diverse sources of capital, but people that are really willing to roll up their sleeves and add value with you from day one,” McIlwain said. “The more of that, that is focused on companies that are based in Seattle and the Pacific Northwest, the better.”

Startups in Seattle are raising gobs of money as of late. Venture capital investors sunk $1.1 billion across 65 deals during the third quarter, according to GeekWire’s tally, derived from our running list of Pacific Northwest startup investments. Funding totals from July and August eclipsed last year’s levels.

While Seattle still remains far behind Silicon Valley, New York, Boston, and Los Angeles in total capital raised, the deal activity is garnering national attention. The Wall Street Journal this summer highlighted the Emerald City with this headline: “Venture Capitalists Target Seattle as Startup Ecosystem Grows.”

The Seattle area is now home to 10 unicorn startups valued at $1 billion. Eight of the 10 companies have achieved their lofty valuations in the past 18 months, and five years ago, there were no unicorns in the region.

Madrona is an investor in just one of those unicorns: Cloud storage company Qumulo.

In recent years, Madrona has strengthened its managing director lineup, adding experienced tech leaders such as S. “Soma” Somasegar, a longtime Microsoft exec; Hope Cochran, a former CFO of King Digital; and Steve Singh, former CEO of Concur and Docker.

Madrona also continues to help support Madrona Venture Labs, a startup studio it launched in 2014. MVL raised its own third fund last year and has spun out several companies this year.

Investors in the new funds are mostly those that have previously participated in past funds — endowments, universities, foundations, large family offices, and high net worth individuals.

U.S venture capital fundraising hit a record high this year, reaching $69.1 billion as of Nov. 20, according to PitchBook. But while overall funding is up, the number of firms that raised funds has fallen by around 50%.

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