Madrona Venture Group has raised its largest fund ever, reeling in $690 million across two investing vehicles that will help the Seattle firm back more startups in its backyard and beyond.
Despite a shaky macroeconomic environment, the latest fundraise “came together very quickly,” said Matt McIlwain, managing director of the 27-year-old firm. It’s one of the largest funds ever for a Pacific Northwest venture capital firm.
While the dollar amount is nearly a 40% jump compared to Madrona’s last fundraise in late 2020, McIlwain said the firm still plans on backing a similar amount of companies from its ninth fund — around 40 venture investments total.
“You need more dollars per company, to support them in this phase of the broader venture capital ecosystem,” McIlwain said. The U.S. venture capital market set records last year, with $330 billion invested across more than 17,000 deals.
Even as some venture capitalists slow their investing amid broader market uncertainty, 2022 is set to be the largest fundraising year for VC firms, PitchBook reported in July.
Madrona raised $430 million for its core “Madrona Fund 9” that will support early-stage companies across the Pacific Northwest, and another $260 million for its “Acceleration Fund 3” which is used for later-stage companies nationwide.
The firm has increasingly looked elsewhere for new investments via the Acceleration Fund, which initially launched in 2019 and has backed later-stage companies such as UiPath and Snowflake, as well as a number of smaller startups.
About 15% of Madrona’s portfolio now consists of companies based outside the Pacific Northwest. Last month it announced a new Silicon Valley office and hired a new managing director based in Palo Alto, Calif.
Still, McIlwain stressed that Madrona is “100% a Seattle-first venture firm.”
“I think the reason we had such a great fundraise is not because we were trying to be the best firm in Seattle,” he said. “We’re trying to be a great world class firm that has a strategy and a focus on Seattle and the broader Pacific Northwest.”
The firm expects to invest half of the Acceleration Fund into Pacific Northwest companies — including those it may have missed out on earlier, such as virtual reality company Rec Room.
“We made the wrong decision there to not invest early on,” McIlwain said. Madrona then led the Seattle company’s $20 million Series C round, and invested again last year as Rec Room’s valuation hit $3.5 billion.
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; “intelligent applications;” and “the future of work.”
The firm has been more cautious with its crypto-related investments but it sees promise in blockchain technologies.
“We do have some blockchain-enabled companies that are doing some really interesting work,” McIlwain said. “And we believe in that kind of broader trend over time.”
Madrona is facing increasing competition for deals in the Seattle region from newer groups such as Fuse, which spun out of Ignition Partners in 2020 and raised $170 million for its first fund, and other early-stage backers such as Flying Fish Partners and Pioneer Square Labs — co-founded by former longtime Madrona managing director Greg Gottesman.
There are also fellow longstanding firms such as Trilogy, which raised more than $150 million for a new fund earlier this year, and Maveron, which raised $225 million in May.
McIlwain said Madrona welcomes the competition, even if it means the firm may lose out on more deals.
“What’s different about the Seattle ecosystem is that it’s more collegial and more collaborative and I think that’s very positive. And we want to kind of keep it that way, collectively,” he said. “But we also don’t want that to hold us all collectively back from building that bigger pie, and together helping to build some really great lasting significant companies.”