The news: Madrona Venture Labs, the startup studio associated with Madrona Venture Group, has raised $8 million for its fourth fund. The Seattle-based studio also unveiled a new model that turns its investors — tech vets such as former Zillow Group CEO Spencer Rascoff; former Qualtrics exec Julie Larson-Green; former Axiom CEO Elena Donio; etc. — into co-founders, board members, and advisors of its startup spinouts.
MVL background: Founded by Madrona in 2014, the studio uses cash from its funds to incubate ideas and recruit a leadership team to eventually run the business. The idea is to fast-track the early-stage startup process for entrepreneurs.
MVL has spun out more than a dozen companies, including some that were later acquired by Nordstrom, Uber, and Mailchimp. Over the past 18 months it has spun out Zeitworks, Simplata, and Stratify.
Many other startup studios have launched in recent years with varying models, including Seattle’s Pioneer Square Labs, Kernel Labs, and Pienza.
What’s new? MVL wants to attract more talent to its studio by offering a chance to work side-by-side with investors in its funds. The strategy came about after the studio’s experience with Strike Graph and Stratify.
Hope Cochran, the former King Digital CFO and current managing director at Madrona, helped Strike Graph get off the ground and land a $3.9 million seed round from Madrona Venture Group. Steve Singh, the former Concur CEO and managing director at Madrona, used his own personal experience with corporate finance processes to help come up with the idea for Stratify. Madrona also led a seed round for Stratify; Singh’s former Docker colleague Brian Camposano is the startup’s CEO.
“When you think about what we did there with Steve, who was involved in validation, co-founder recruiting, and funding — think about doing that at scale across all of our companies,” said MVL Managing Director Mike Fridgen. “That’s what’s really special.”
Too much equity? One critique of startup studios is that they take too large of an equity stake upfront. This can dissuade some entrepreneurs who want to retain their shares.
In some cases, investors who partner with MVL spinouts will have an equity stake, which could further dilute a founder’s piece of the pie. But Fridgen said the studio is “not really changing the economic terms with the founder.” He declined to provide details about how much equity the studio takes.
“Over the past five years we have been obsessed with increasing founder value and making the MVL model more advantageous than the bootstrapping model when it comes to founder equity,” he said.
Fridgen detailed “key improvements to our founder-value proposition” in a blog post. They include “validation process;” “founder ownership;” — MVL has increased founder equity shares over time — and “funding access.” MVL uses its close relationship to Madrona as a selling point — it says it can help reduce the time it takes to raise a seed round.
Investors: Madrona is MVL’s lead investor. Others participating in the fourth fund include experienced tech execs such as Elie Seidman, former Tinder CEO; Court Lorenzini, co-founder DocuSign; Elissa Fink, former Tableau CMO; Erik Blachford, former Expedia CEO; Mike McSherry, Xealth CEO; Jon Gelsey, former Auth0 CEO; Chad Cohen, Adaptive Biotech CFO; and Ralph Pascualy, former Swedish Medical Group CEO.
What’s next? The studio plans to spin out 6-to-8 companies with the new fund. It is focused on the Pacific Northwest but is open to working with companies and founders based anywhere. Its investment themes are AI-driven applications; automation; and the future of work. MVL has raised $28 million to date.
