Zoom is okay, however location is extra vital than ever, argues Madrona’s Matt McIllwain • TechCrunch

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In downtown Seattle, places of work are solely 42% as full as they have been earlier than the pandemic, in keeping with data cited late last month by the Seattle Instances. It’s an issue, suggests Matt McIlwain, who has been a managing director on the early-stage enterprise agency Madrona Venture Group in Seattle for 22 of its 27 years. “No one has found out hybrid work but, which implies all of the startups and all of the VCs try to determine it out, too,” he says.

What McIllwain does know is that “in-person human interplay is crucial to trust-based relationships.” That’s partly why Madrona’s companions have themselves been assembly within the workplace each Monday and Thursday for almost a yr. It’s why 80% of the agency’s investments are funneled into startups within the Pacific Northwest, the place Madrona’s staff can go to with founders head to head. It’s additionally why, for the primary time in its historical past, Madrona opened an workplace this previous summer time in Palo Alto, the place others of its offers are getting achieved. (To steer that new workplace, Madrona introduced aboard veteran VC Karan Mehandru, who has household in each areas and who co-invested in quite a few offers with Madrona beforehand.)

We talked extra with McIllwain yesterday concerning the significance of being current amongst different issues. It appeared a superb time provided that Madrona has simply closed on $690 million in capital commitments throughout two new funds — a file quantity for the agency regardless of shaky market circumstances. As we discovered, a 2020 investment within the knowledge storage firm Snowflake forward of its IPO later that very same yr certainly helped, together with other exits. Extra from our chat follows, edited for size.

TC: It is a step up out of your final units of funds, totaling $500 million and $350 million, respectively. How is that this new capital being damaged out throughout the 2 funds, and what are Madrona’s complete property beneath administration at this level?

MI: We now have $3 billion in property beneath administration. We raised $430 million for our early-stage fund and $260 million for our latest acceleration fund. We have been delighted to have 100% of our longstanding traders come again to this fund, together with well-known college endowments and foundations and household places of work that you simply would possibly guess [at] given [they are based in] Seattle.

Any overseas funding sources like sovereign wealth funds? I hold questioning how institutional traders within the U.S. have capital allocation to spare proper now, with their public market portfolios up to now down.

Efficiency issues, and for those who’re a long-term investor and also you’re getting important returns and also you consider a staff can navigate up and down cycles, [you commit]. However there may be reality to this so-called denominator impact. [I think limited partners are] prioritizing their long-term relationships and never on the lookout for a bunch of latest relationships presently. We do at all times like so as to add a few new LPs with every fund and we have been ready to do that, however no, none have been overseas or sovereign wealth funds.

When you’ve raised a file quantity, tech startups in Seattle and the Pacific Northwest are elevating much less, in keeping with GeekWire. It estimates native startups garnered 20% much less within the first half of this yr in contrast with 2021.

When you might have such a file yr as 2021, you’ll doubtless have some sort of correction. Final yr, VCs invested greater than $300 billion, I feel, up from $150 billion within the prior few years, which means you’d should see a decline of fifty% simply to get again to that time. So down 20% suggests extra resilience [despite] that there was a lot adjustment in mixture valuations.

I additionally suppose entrepreneurs are elevating smaller rounds. Some are saying, ‘Okay, let’s be extra disciplined about [fundraising] and the milestones I accomplish.’

Do they actually have a selection?

A few of it’s capital market pushed. Some VCs say the trade did get forward of itself [last year]. As a result of individuals have been elevating greater rounds, you have been placing extra capital in hoping different components can be de-risked, however the actuality is [the opposite happened in some cases].

Your acceleration fund just isn’t a typical alternative fund. You aren’t utilizing it to put money into portfolio firms however relatively firms you haven’t funded but.

Sure, it’s targeted on firms which have discovered product-market match, typically Collection B or C stage [across the country].

Snowflake was amongst these. Its shares traded so excessive after it went public within the fall of 2020 and zoomed larger nonetheless, however they’ve actually bumped round since. Did you promote your stake? Do you might have a philosophy about how lengthy to hold on to shares earlier than you distribute these to your traders?

A companion who isn’t the lead on the board of an organization and a few of our staff do an evaluation. We attempt to say, ‘Let’s have a look at this objectively.’ We do take our time, so we aren’t [exiting] early however we’re not holding on without end, both. Because the market was in a really beneficiant temper final yr, we had thresholds and Snowflake was [trading at such heights] that we distributed 75% of our stake at properly north of $300 a share. We’re large believers within the firm and we’ll take a considerate strategy with the remaining.

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