Industry reports signal tough times for venture capital firms, with shrinking returns and lackluster results tied to a weak IPO market. But despite the headwinds, Madrona Venture Group still was able to meet with success on the fundraising trail.

The Seattle venture capital firm has closed a $300 million fund, beating out original targets of $250 million. It marks the biggest venture fund for Madrona since the firm was founded in 1995 by Tom Alberg, Paul Goodrich, Gerald Grinstein and William Ruckelshaus. It is also the largest in the Pacific Northwest since Ignition Partners raised $400 million in 2007.

Madrona, which made a name for itself with early investments in companies such as Amazon.com, Isilon Systems and Sharebuilder, will continue to focus on early-stage investments in the Pacific Northwest. Its main areas of interest include consumer internet, enterprise software, digital media, online advertising, mobile and cloud computing.

Matt McIlwain

We’ll be talking to Madrona’s Matt McIlwain later today, and we’ll have more from that interview Wednesday. (See link below).

Madrona plans to invest the new fund in about 30 new companies over the next four years, targeting roughly 85 percent of the capital in companies in the Pacific Northwest. McIlwain said that’s a strategy that has worked in the past, and they don’t plan to stray from it in fund V.

“Early-stage venture capital is a local business, and Madrona has a long track record of successfully helping great entrepreneurs build lasting companies from the seed and Series A stage onward,” said McIlwain in a statement. “Our new fund will focus on backing the entrepreneurs and ideas that drive the next technology revolution and expand the innovation ecosystem our team fosters every day. We also believe that venture funds with focused strategies and capital between $200 million and $400 million create the strongest alignment between entrepreneurs, venture capitalists and institutional investors.”

Madrona’s fifth fund is good news for the Pacific Northwest startup ecosystem, providing much-needed capital for early-stage entrepreneurs. In recent months, some  in the region have expressed frustration over the lack of startup capital available at good terms, highlighted in recent months by the departure of entrepreneur Tony Wright for Silicon Valley.

One recurring theme in the criticism is that Washington state — which ranked fifth in venture capital financing last quarter — just doesn’t have enough capital to fuel early-stage startup ventures.

Madrona has made a number of new investments in companies in the Seattle area in recent months, including Mobilisafe and Rover.com. With the new money now in place, the firm can ramp up its investment pace. It’s already been adding to its bench strength, promoting Tim Porter, Scott Jacobson and Len Jordan to partner last year. It has also added Julie Sandler, formerly of Amazon.com, and  Robin Andrulevich — a veteran HR director who previously worked at Lockerz, Amazon.com and Qpass — to the team.

Cash for the new fund was provided largely through the firm’s existing endowment partners, but some of the money also came via technology executives and entrepreneurs in the Seattle area.

FOLLOW UPMadrona’s Matt McIlwain on their new fund and why he’s pumped to invest it in Seattle

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Comments

  • Guest

    “One recurring theme in the criticism is that Washington state — which ranked fifth in venture capital financing last quarter — just doesn’t have enough capital to fuel early-stage startup ventures.”

    If MS took even a small portion of the $9.5 billion that it “invests” in R&D annually, and instead redistributed that to local startups, the local startup community would have plenty of money and MS would likely end up with more usable innovation, which it desperately needs since Apple and Google (and others) have run circles around MS for years now.

  • http://www.facebook.com/peignoir Franck Nouyrigat

    Congrats Guys! this will have a huge impact on the Startup Scene here! Can’t wait to see what’s coming up! 

  • http://www.facebook.com/profile.php?id=33567 Nikesh Parekh

    Congrats to the team at Madrona on this great accomplishment!  

  • http://twitter.com/spencerrascoff Spencer Rascoff

    Congratulations to Madrona. Great news for the Seattle tech scene.

  • Rayburt456

    Didn’t Madrona make money on Isilon *after* it went public and the stock tanked (so they bought it on the open market) and then it went up and got sold?  I just think that’s not a real VC success story.  That’s a investment adviser success story.

    • johnhcook

      They made money two ways, both through stock purchases once the stock fell to extremely low prices in the public markets, but also when Isilon was sold for $2.25 billion given Madrona’s very, very early venture investment shortly after Isilon was founded.

      In fact, as I previously reported, Madrona invested $3.5 million in Isilon four months after it was founded (in the middle of the dot com bust).  

      I think your incorrectly thinking that Madrona’s only position in Isilon was through the public stock purchases. That was not the case, and represented a small portion of Madrona’s share. (It was an unusual move when Madrona bought shares in the open market, and I reported on it at the time with McIlwain suggesting it was odd for the firm, but a good opportunity).But the key point here is that Madrona was one of Isilon’s earliest investors, investing well before the company went public, even beating famed Sequoia Capital into the deal. In fact, here’s a story I did on Madrona joining with Sequoia in Isilon’s second round of funding in … 2002. Madrona was the return investor. 

      http://www.seattlepi.com/default/article/Isilon-raises-15-million-despite-no-profits-1091630.php 

      If anything, the Isilon deal represents one of the most savvy venture investments in Seattle, not only because Madrona got in early, but stuck with the company through some really tough down times and then — amazingly — doubled-down on the company when it was getting beat up in the public markets.

      • Rayburt456

        Thanks for the reply.  So the original investment (not the public market play) in Isilon paid off well for fund investors?

        • Rayburt456

          I’m asking because I am not a fund investor…

    • http://www.facebook.com/elise.hebb Elise Hebb

      Hi Rayburt456!  Thanks for your comment, but just wanted to clarify.  Madrona invested in Isilon Systems in the first financing round (the Series A).  We also invested in every subsequent round of funding.  When the stock price declined Madrona purchased shares in the public market, both as a sign of support for the company and as to generate more returns for our investors.

  • Bryan Mistele

    Congrats Matt and the rest of the team at Madrona.  Glad to see venture capital in Seattle is alive and well.

  • http://twitter.com/alwaysbshipping Tom Leung

    Congrats to Madrona and to the Seattle startup ecosystem.  Here’s to putting some of that money to work pronto ;-)

  • David Shim

    Congrats to the team at Madrona!

  • http://twitter.com/kforeman1 Kevin Foreman

    Indeed, congratulations.  Most people see VCs from the investing side, but in order to invest, they need to first raise the funds.  Madrona is a class act with a great team.

  • http://twitter.com/lanctot Jeff Lanctot

    Nice work by Matt and the team at Madrona

  • http://twitter.com/fijiaaron Aaron Evans

    Great work Madrona. You guys are head and shoulders above the average VC and much friendlier than the SV crowd. Glad to see you guys will have more money to invest in the local Seattle startup community.

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