Twenty years ago, Madrona seeded a company called Farecast based on the research of Professor Oren Etzioni from the University of Washington computer science department (now the Paul Allen School of Computer Science). Farecast was an early innovator in using data and statistical methods to make predictions – in their case, predicting whether airfares would rise or fall in the future. They competed with Kayak in travel metasearch and were purchased by Microsoft, becoming Bing Travel.
A decade after Farecast was founded, Paul Allen formed the Allen Institute for Artificial Intelligence (AI2) to leverage AI for the common good! AI2 hired Oren to be its first CEO in 2013. Over the past decade, AI2 has hired exceptionally talented researchers and innovators and contributed countless projects and technologies to the greater ecosystem, including Semantic Scholar, SciSight for AI scientific research during COVID, and much more.
Along the way, AI2 allowed its world-class researchers the space to explore other ways they could positively impact the world. In 2016, a team of researchers led by Ali Farhadi and Mohammad Rastegari founded XNOR to transform how machine and deep learning models could run “resource efficiently” at the edge. For instance, they deployed an image detection model on a resource-constrained Raspberry Pi Zero device. XNOR followed Turi and other Madrona companies in being acquired by Apple in early 2020, and that team continues to do transformative work embedding AI models and systems into the Apple product suite.
As companies like XNOR progressed, the AI2 team envisioned incubating AI-driven startups outside its core team of researchers. As the incubator started to build momentum with teams launching companies like Lexion, Ozette, and Yoodli, the idea of a small fund to support those companies at a seed stage emerged. The same week XNOR announced its acquisition in January 2020, the initial $10 million AI2 Incubator Fund was launched. The Madrona team, having an almost decade-long history of investing in AI-driven companies at that point, helped design the fund, was the lead investor, recruited fellow VCs like Sequoia and TwoSigma to co-invest, and then actively engaged with the AI2 Incubator team to recruit entrepreneurs and build companies.
And the success speaks for itself. Madrona has funded seven companies spun out of AI2, including Ozette, Lexion, and WhyLabs. And in the last few years, early-stage spinouts from AI2 have raised $160 million in follow-on capital.
Today, the amazing team at the AI2 Incubator, including Jacob Colker, Vu Ha, and Bryan Hale, is announcing a second fund of $30 million, which is three times the size of the initial one. Madrona once again is the lead investor and is joined by many of the same earlier fund investors and some great new ones, including Vinod Khosla and Evergreen Ventures. Fund 2 comes at a transformative time in AI with the rise of large language models and generative-native applications. The world of intelligent and generative AI is exploding with early product leadership from companies including OpenAI, Microsoft, Anthropic, Langchain, and RunwayML. Opportunities abound at all layers of the GenAI stack and across vertical industries, including the very promising area of combining AI with life sciences and biology to improve human health. The potential to disrupt traditional products, companies, and business models is just getting started.
We believe AI-driven startups with world-class product teams will have a strategic advantage in positively transforming the world around us. The AI2 Incubator and fund have the ability to attract these entrepreneurial teams, support their growth through a proven and tailored approach to company building, and fund their early progress.
Madrona has been investing in Intelligent Applications and enabling technologies for over a decade with companies like Turi, Algorithmia, Amperity, and Lexion. We created Madrona Venture Labs in 2014, spinning out companies like Pendulum, Outbound AI, and Strike Graph. And with support from the broader VC community, we launched the Intelligent Applications Top 40 in 2021 and will hold the second annual Intelligent Applications Summit in Seattle on October 11. While AI in various forms has been utilized for decades, we view the rapid success of ChatGPT (launched just five months ago) as the “Mosaic browser” moment for unlocking the value of generative AI with consumers. We are already investors in generative AI applications and enablers like RunwayML, OctoML, DeepGram, and Fixie. We believe that both GenAI-native and enhanced companies can create and capture value in the years ahead. And we expect that several of those transformative companies will emerge from the AI2 Incubator!
Seattle is a robust, market-leading ecosystem for AI-driven companies. Two of the largest tech giants are Seattle –area-based Microsoft and Amazon, and others like Apple, Google, and Meta have large AI presences here, too. The vibrant entrepreneurial community is highlighted by the recent startup week Madrona Venture Labs hosted, the Langchain (and more) meetup at OctoML, and several great AI2 events. Our community is only getting started on building transformative companies with customer-centric solutions leveraging AI. We are also aware that there are plenty of risks and issues around AI ethics and regulation that will need to be evaluated. But we believe technology-driven disruption needs to lead to discovering the best adaptations for our standards and laws.
At Madrona, we talk about helping build a bigger pie of technology-driven innovation. And our longstanding partnerships with AI2 and the AI2 Incubator are a great example of living out that goal. It also highlights the importance of having a long-term mindset. We love partnering with amazing founders from Day One, and we are committed to helping them succeed over the long run. The GenAI era will produce some very special and enduring companies, and while the AI2 Incubator’s companies are fostered here in Seattle, their impacts are global. We are excited to keep working closely with the AI2 Incubator and founders on building these world-changing companies.