Ignition changing course as it seeks to raise new fund

Frank Artale

Ignition Partners has experienced a number of transformations over the years, launching a fund in China and debuting a fund just for later-stage deals. Now, the Bellevue venture capital firm — a backer of Splunk, Hipmunk, DocuSign and others — is getting ready for its biggest change yet.

The firm, which is currently in the process of raising a fund in the $150 million to $200 million range, has reorganized around two key partners. Those include former Citrix executive Frank Artale and former Microsoft CFO John Connors, with venture capitalist Nick Sturiale also expected to join the partnership if the new fund closes. (Sturiale, who sits on the board of Splunk with Connors, is currently listed as a venture consultant at Jafco Ventures)

The remaining partners at will not be part of the legal entity being created with Ignition’s newest fund, the firm’s fifth. However, a source tells GeekWire that many of those partners — including Michelle Goldberg, Cam Myhrvold, Steve Hooper and others—  could still have affiliate roles with the firm.

We’ve heard rumors about the changes going on at Ignition for months now, hearing that a splinter group of partners could be forming a seed-stage fund.  But the news was first reported today by Dan Primack at Fortune, who noted in his report that Ignition’s Brad Silverberg, a former Microsoft VP, may try to raise a consumer-focused venture capital fund.

We’re told that Ignition will continue to invest nationally, making bets in the areas of enterprise software, big data and cloud computing. That’s an area of expertise for Artale and Connors, and it’s also where the firm has seen the bulk of its success with positive outcomes around Splunk (which went public) and StorSimple (which was acquired by Microsoft).

The reorganization is the latest change in the Pacific Northwest venture capital market, following news last year that Madrona Venture Group raised a $300 million fund and that OVP Venture Partners planned to wind down operations.

If successful on the fundraising trail, Igniton’s new fund would be about half of the $400 million that it raised in 2007.

  • http://twitter.com/Seattle_Startup Seattle Startup

    How have previous funds performed?

    • johnhcook

      Good question. Splunk was a nice outcome for Ignition, but overall not sure how they’ve done in relation to other firms.

      I looked today at the Washington State Investment Board to see if I could find financial results, but it appears that Ignition did not raise money from state of Washington. I’ll keep looking around. But if you know of a public pension fund that bankrolled Ignition, let me know, and I’ll try to dig up their results.

      • JeffS

        Good discussion string here. Washington State is not an LP in Ignition or any of the other significant VCs in Seattle, and generally does very little in VC. Much more in private equity. The exceptions are investments in OVP and some early Frazier funds, both date back to old relationships, early funds, etc.

  • Thomas R.

    Does this mean Ignition is breaking up into separate firms?

    • johnhcook

      They’ve already done that to some degree, with their Chinese venture fund and the growth equity fund (Ignition Capital). Now, with the latest transformation it does appear that some partners may be splitting off, though I’m hearing they would still be somehow affiliated with Ignition.

      I started hearing a few months ago that a group of the partners were contemplating a separate seed fund. I’ll keep digging around on this and report back as I hear more.

      • Thomas R.

        Great reporting as always John, interested to hear your thoughts on how this will change the startup eco system here in Seattle (if at all). Can Seattle continue on the path to being startup hotbed without VCs like Ignition around? Seems like most of their investments lately have been outside Seattle.

        • johnhcook

          Short answer, no. I’ve been meaning to write a column about this on GeekWire, but since you asked, here are some of my thoughts.

          Seattle is a major tech hub, but we are getting dangerously close to a region with just one major VC firm: Madrona. Even the folks at Madrona will tell you that they want more VC firms floating around this town. (A rising tide lifts all boats).

          Frankly, as an observer of the tech community, I am worried about the lack of venture capital now populating the region. Some people don’t like VC, they say we don’t need it, but the equation is simple: Money = more startups.

          Ignition has been investing a lot outside of the Seattle region in recent years, and I am hearing that the national focus will continue with the new scaled down fund. So, let’s say, hypothetically, that the new Ignition fund (if it successfully reaches its peak of $200M) invests 25 percent of its funds in Seattle, that’s $50 million or the the equivalent of about 10 companies. (taking into consideration follow-on investments)

          Not bad, but take the $400M fund that Ignition raised in 2007, and let’s say that 25 percent of their funds flowed to Seattle startups — that’s $100M, or 20 companies.

          So, as I see it, there could be a heck of a lot less capital flowing in the region as a result of this. Fewer dollars, fewer chances of home run successes.

          Of course, other sources of capital could emerge, and I hope they do. But, at least in my view, for a tech community of Seattle’s size and prominence, the amount and size of the VC pool here is dangerously low. It’s a problem.

          And it’s an opportunity.

          • Thomas R.

            Great stuff John, please write a post, would love to read more.

            Hopefully we’ll see more seeds funds and then venture funds will follow. Maybe it’s time to start a Geekwire Fund =)

            Many local entrepreneurs have been asking what we need to do to become more like the valley, but these entrepreneurs have only been here a few years. I’m curious what you think since you’ve seen it all.

            I’ve always been surprised by how much wealth there is in the region but yet how risk adverse these people are with their investments. Money managers seem to do better here than venture capitalists. And we’ve had some successful exits too (popcap, splunk, concur, etc.) but I’ve heard little about those founders or executives putting money back into the eco-system.

            Thanks for being the only news source dedicated to covering Seattle.

          • johnhcook

            Thanks for the kinds words, and no, sorry to say, there is not a Geek Fund in the works. ;)

            I do have some thoughts on this topic, however. I don’t want Seattle to be the Valley, and I am tired of us comparing ourselves to them. Seattle is a unique place and it can stand on its own. There are some things that need improved — including the capital situation. But we should not hold up the Valley as what we aspire to be. We need to think more creatively about the tech community, and who we are and what makes us unique.

            One person to watch who I think is going to recycle his capital in the community is Sujal Patel, co-founder and former CEO of Isilon. He just left Isilon, and I believe he is truly committed to the region. But we need 20 or 30 Sujal Patels around the region, just as we need 4 or 5 Madronas or Ignitions.

            Another one to watch is Raj and Steve Singh of Concur, who have backed local startups and just started a $150M corporate VC fund.

            http://www.geekwire.com/2012/concur-forms-150-million-fund-to-bankroll-travel-oriented-startups/

            Anyway, I do have a lot to say on this topic. I hope to columnize on it soon.

          • Bill Bryant

            Two rejoinders – while more venture capital is better all other things being equal, capital is fungible. It follows entrepreneurs and break out companies. Look at the backers of Seattle’s current crop of super successful startups – Apptio, Tableau, Parallels, Redfin, Zulilly, Inrix. The *vast* majority of the capital came from out of town investors, and several of these have NO local backing. Same analysis holds for the up-and-comers. Just this week Simply Measured brought Bessemer into the local market. They will be looking for more deals now that they are here.

            Second thought is that the smaller, slimmed down Ignition may actually benefit Seattle startups where we really need the help, on the seed/Series A (my point above is that there are plenty of investors willing to fund growth & expansion). By design, the smaller fund will mean smaller check sizes, which will in turn mean earlier investing. Ignition will be Series A investor, and possibly seed, not a Series B/C. And a smaller, earlier fund generally dictates an “invest local if possible” strategy – I would expect a far larger % of Ignition deals to be very local, as contrasted to the national scope they had over the past 5 years which resulted in a far flung portfolio.

            Seattle can definitely use another $100M seed focused fund, or perhaps two or three $50M vehicles , but I’m not worried about the best startups. And in the end, its only the “best” startups that matter in terms of regional vibrancy, capital accumulation, and economic growth.

          • Bill Bryant

            One more point: this is all cyclical. We’ve seen a slow demise of numerous venture firms that were once active in Seattle – Polaris, Cable Howse, Seapoint, Fluke, etc. My prediction is that as a half dozen or more Seattle companies get liquidity at $500M-$2B over the next 18-24 months (Inrix, Tableau, Zulilly, Parallels, Apptio….), institutional investor attention will get refocused on Seattle. The first sign will be Bay Area funds setting up satellite offices here.

          • Thomas R.

            Great points Bill! My question is why are these local venture capital funds not participating. Given that all these startups are local you’d think they would have first dibs on investing.

            Is it a problem with personality? I’ve found that investors down in the Bay Area are more casual and approachable and have startups sharing their offices. Whereas here in Seattle, investors build a wall between them and entrepreneurs with their offices downtown far away from where entrepreneurs work and meet.

            Hopefully the slimmed down Ignition or seed spin off will do more investments and take more risks. As long as startups keep taking money from outside the state, the money and wins will belong to the Valley not Seattle.

  • Rich

    John, may be everything is more straight forward. The three people stay
    and form a new lean fund and they willing to chip in own
    money along with limited partners. All three can afford put a meaningful sum. The rest don’t risk own money and quit.

  • Frank Lee

    At least that asshole Martin Tobias is out of the picture…tippr sucks, in fact keeping Martin away from business is good for business. I don’t even want to get I too his family wrecking skill set. He’s just an adulterer.

  • Frank

    What happen to the Martin Tobias comment? I believe he was apart of ignition at some point….was the commentor right? Wow I guess when you mess around with other people’s wives, people get pissed. Is that why he’s gone?”