News & Views

 

It’s Been an Incredible Experience – 23 years on the Amazon Board

Managing Director, Tom Alberg, announced today that after 23 years on the board of Amazon.com he intends to step down in May of 2019.  Alberg first invested in Amazon.com in the company’s Series A financing in 1995 and is the longest serving member of the board after CEO and founder, Jeff Bezos.  Alberg will continue as a managing director of Madrona Venture Group and several corporate and non-profit boards.

“Serving on the Amazon board has been an incredible experience.    Amazon’s growth and expansion is a testament to not only how technologies like the Internet have expanded in just 20 years to dominate our lives, but also to the ability of Jeff to build a team that inspires innovation and creativity at every turn,” commented Alberg.

Alberg is a co-founder and managing director at Madrona Venture Group, which invests in information technology companies in the Seattle region with a focus on early stages companies.  The firm raised its 7th fund last year and has nearly $1.6 billion under management. Alberg also serves on the board of Impinj (NASDAQ:PI) and the non profit boards of Oxbow Farm & Conservation Center, the Pacific Science Center and sea.citi.  Alberg and his wife, Judi Beck, cofounded Oxbow as well as the Novelty Hill Winery.

The original Amazon board was Jeff Bezos, Tom Alberg and John Doerr of Kleiner Perkins.  Doerr left the board in 2010. While the board has grown over the years, the company and Alberg maintained a philosophy of having a balance of business know how and people who are on the cutting edge of technology.

“Being a venture capitalist in one of the healthiest tech ecosystems in the U.S. means that I get a bird’s eye view into the latest trends driving both startups and customer traction.  Having this balance on the board for a company like Amazon has been very helpful for the company’s growth,” added Alberg.

Madrona has created strong ties with Seattle anchors, Amazon and Microsoft.  The firm holds regular briefings with both companies in key technology areas such as cloud, productivity and new user interfaces such as voice.  This connectivity in an increasingly competitive world is helpful for entrepreneurs of early and mid stage companies.

 

 

 

 

POSTED IN: Madrona News

The Big Clouds are All “Hybrid Clouds” Now!

First it was Azure stack, then came AWS/VMWare with AWS Outpost and now there is Google Anthos.  Google announced general availability of its Anthos Cloud Services Platform at Google Next this week.  Anthos has many elements but the telling one is that it lets you run Google Cloud on-premise and in other cloud environments.

As the number three provider with a new energized leader, you have to wonder if it’s too little, too late?   Time will tell.  What is interesting is that this move toward hybrid reflects what we are seeing in enterprise use of public clouds – they are all in as long as it’s hybrid.  And increasingly multi-cloud.

While each of these offerings from the cloud providers is different, the unifying theme of the Anthos announcement is that the large public clouds are fully embracing the reality of the enterprise hybrid cloud.

So, what exactly does “hybrid cloud” mean?  In short, it means that portions of an application or workload can run in your “on premise” data center while other portions run in a public cloud data center.  This combination of public and private cloud infrastructure helps optimize the agility, cost, latency, and performance of workloads while minimizing the additional security and manageability requirements.  It is especially helpful for existing apps that can move a portion of the overall workload (say storage backup or compute “bursting”) to the cloud.  And, it is even better for new or existing applications that want to build or modernize workloads in a cloud native manner.

One way to do this is to have infrastructure on premise that looks and acts like the public cloud’s Infrastructure As A Services (IAAS) offered today by AWS or Azure.  AWS Outpost and Microsoft’s Azure Stack are services that help in these use cases.  Another approach is when you are trying to move or migrate portions of your application to the public cloud. This is what Google Anthos is all about

Why is Google doing this?  First, they hope to compel you to modernize your infrastructure by embracing a lightweight virtualization technology called containers that are predominantly orchestrated/managed by a service called Kubernetes that was originally created at Google.  The second reason is that once your application runs in containers it is more portable from one cloud (public or private) to another cloud.  In this way, Google hopes to move applications off of AWS and Azure.  Here is how the VentureBeat put it:

“It’s one thing to use a service like this for new applications, but many enterprises already have plenty of line-of-business tools that they would like to bring to the cloud as well. For them, Google is launching the first beta of Anthos Migrate today. This service will auto-migrate VMs from on-premises or other clouds into containers in the Google Kubernetes Engine.”

Being in a distant 3rd place position can lead to a counterintuitive strategy.  And, Google could benefit from leading the efforts to make workloads portable in the cloud (both to move them from on premise to Google and to move them from AWS/Azure to Google).  But, they will have competition in leading the containerization charge from VMWare, Redhat/IBM and in some forms the market leading clouds!

 

POSTED IN: Madrona News

Quantum Computing is Coming, Let’s Focus on Getting our Computer Science Workforce Ready
(Photo credit: Andrea Starr/Pacific Northwest National Laboratory – Derek Kilmer, Tom Alberg)

At Madrona, we are investigating the potential for quantum startups, taking quantum dives with Craig Mundie and spending off-sites delving into the state of the technology with expert researchers.  We are excited about this area and are continuing to meet with companies venturing into this exciting area of computation.  This post was first published by Geekwire.  

This week I had the opportunity to speak at the Northwest Quantum Nexus Summit, co-sponsored by Microsoft, the University of Washington and Pacific Northwest National Labs.  The Summit brought together, for the first time, the large network of quantum researchers, universities and technology companies working in Quantum Information Science (QIS) in our region to share quantum developments and to work together to establish the Pacific Northwest as one of the leading quantum science centers in the world.

Quantum computing has the potential to transform our economies and lives.  As one of the Summit speakers said, we are on the “cusp of a quantum century.”  Quantum computers will be able to solve problems that classical computers can’t solve, even if they run their algorithms for thousands of years. Quantum computers are not limited to the on-or-off (one-or-zero) bits of today’s digital computers. Quantum computers manipulate “qubits” that can be one-and-zero simultaneously which allows exponentially faster calculations.

Quantum computers are expected to be able to crack present day security codes, which is already causing scientists to work on devising new encryption protocols to protect consumer and business data and national security.

Applications developed for quantum computers likely will help us overcome existing challenges in material, chemical and environmental sciences such as devising new ways for sequestering carbon and improving batteries.

Even though the Seattle area is one of the top two technology centers in the U.S., along with the San Francisco Bay area, we have to make investments now to ensure we become a leading quantum center.  To achieve this goal, I argued that we will need to substantially increase financial support to build up the UW’s quantum research capacity and equally important, to create an extensive quantum information science curriculum.   The UW’s School of Computer Science and Engineering began this year to offer a course teaching Microsoft’s Q# language, but one course is not enough if we are to make our area one of the major quantum centers of the future.

Fortunately for our region, Microsoft is one of the acknowledged leaders in quantum computing and is committed to building our regional network.  CEO Satya Nadella gives credit to former Microsoft chief technology and research leader Craig Mundie for launching Microsoft’s quantum initiative 10 years ago.

Microsoft’s goal is no less than to build a “general-purpose” quantum computer – the holy grail of quantum computing.  In the meantime, they are supporting efforts to build a cadre of researchers who are familiar with quantum and capable of writing quantum programs.  They have developed and launched a quantum computer language, Q# (Q Sharp), a quantum development kit and “Katas,” which are computing tasks, that classical computer scientists can use to learn quantum computing skills.  They are also building an open source library of quantum programs and have launched the Microsoft Quantum Network to provide assistance to quantum startups and developers.

The federal government has recently launched the National Quantum Initiative which will provide $1.2 billion over the next five years primarily to quantum researchers.  The President signed the new law in December after the bill was approved by unanimous consent in the Senate and a vote of 348-11 vote in the House.  Among the purposes are to build a “quantum-smart workforce of the future and engage with government, academic and private-sector leaders to advance QIS.”

This federal funding is welcome, even though less than required for a Manhattan-style project equivalent to China’s national quantum initiative. It will be highly important to our region that our Congressional delegation, several members of whom are particularly tech savvy, advocate our case for a fair share of this funding.  Our Washington legislature should support this by making appropriations for quantum computing and education at the UW as a down payment showing local support.

There is also a role for private companies to support our quantum efforts beyond what Microsoft is already doing.  I am reminded of the grants by Amazon to the UW in 2012 during the Great Recession engineered by then UW CSE Chair Ed Lazowska to recruit two leading professors, Carlos Guestrin from Carnegie Mellon and Emily Fox from the University of Pennsylvania, to strengthen the UW’s machine learning expertise.  The two $1 million gifts created two endowed professorships.  Inflation has certainly raised the price for endowed professorships, but perhaps this could be repeated.  Another way to build our region’s quantum expertise would be for a local tech entrepreneur to follow the example of Paul Allen who endowed five $100 million plus scientific institutes, one of which is the Allen Institute of Artificial Intelligence, headed by former UW professor and currently Venture Partner at Madrona, Oren Etzioni.

Building a quantum workforce begins in K-12 schools with teaching computer science, which is a stepping stone to quantum information science.  K-12 schools in the U.S. are woefully deficient in teaching basic computer science.  Nationally, only 35% of high schools offer a computer science course, according to Code.org.  And in low income and minority schools this is even lower since the 35% reflects a lot of suburban schools which are more likely to offer computer science courses.

Nationally, only 35% of high schools offer a computer science course, according to Code.org.

We are beginning to address this gap in high schools but a much larger commitment is needed.  Private companies can help fill part of the gap.  Amazon recently announced its Future Engineers program, which includes a $50 million investment in computer science and STEM education for underprivileged students.  As part of this program, a few weeks ago, Amazon announced  grants to more than 1,000 schools in all 50 states, over 700 of which are Title 1 schools.  Studies have shown that if a disadvantaged student takes an advanced computer science course in high school, they are eight times as likely to major in computer science at a university.

In addition to Amazon, Microsoft and other tech companies have programs to increase the teaching of computer science.  One of those programs, backed by Microsoft, is TEALS, which organizes employees and retired employees as volunteers to teach computer science in schools.  Amazon, Microsoft, and other tech companies are big financial supporters of Code.org which is having a significant effect on increasing the teaching of computer science in public schools.

The Bureau of Labor Statistics projects that by 2020 there will be 1.4 million computer science related jobs needing to be filled but only 400,000 computer science graduates with the skills to apply for those jobs.  Only a tiny percentage of the 400,000 are minorities or from low income families.  A similar gap exists in Washington State, with a gap of several thousand between the jobs needing to be filled and the number of annual graduates.

In Seattle and other tech centers in the U.S., we have been fortunate that we have been able to attract and retain a very substantial number of computer scientists from other countries to fill these jobs.  But with immigration and trade uncertainties, this flow is uncertain and may not be as robust as needed.  Even more important, by not providing the opportunity for our kids, particularly disadvantaged children, we are short-changing them.  The best way to close the income gap is to improve our public educational system so a broader segment of our population can qualify for the jobs of the future. Organizations such as the Technology Access Foundation are attacking this problem head on by creating curriculum, recruiting minority teachers and building schools.  We need to support these organizations and implement their approach broadly.The best way to close the income gap is to improve our public educational system so a broader segment of our population can qualify for the jobs of the future.

The best way to close the income gap is to improve our public educational system so a broader segment of our population can qualify for the jobs of the future.

At the university level, we are also deficient in educating a sufficient number of computer scientists.  Even at universities such as the UW, with large and high quality computer science schools, we are unable to fill the demand for computer scientists.  The Allen School graduates about 450 undergraduate students annually.  Although this is double what the school produced a few years ago, it is woefully short of the several thousand needed annually in our state.  This needs to be doubled again but funding is lacking.

In short, our region needs to recommit to building our computer science workforce beginning in our K-12 schools and undertake a new effort to build our quantum expertise and workforce.

POSTED IN: Madrona News

All About Your Board of Directors

Pictured Forest, Alan and Len

Last week, Create33 hosted a panel for startups on The Board of Directors – how to manage, form, and think about them in the company building process.  Len Jordan, managing director at Madrona, Forest Key, founder and CEO of Pixvana and Alan Smith of Fenwick & West talked about good and bad board experiences and gave some top tips for getting started and staying on an even keel.

What is the purpose of a board for a startup founder/company?

Everyone agreed that the board is a resource for a founder to leverage and one they can’t afford to ignore.  Board members are there to help you build your business by bringing knowledge, experience, relationships and perspective you as a founder may not have.  This means you need to choose your board members wisely.  Look for people who can work well in groups, are prepared to dig in and spend the time and who have skills and experiences you don’t.

How early is too early to start a board? Never too early.

But there are some considerations:

Size  In the early (pre-A series) stage, your board should be small –  you, an angel investor, an independent advisor with strong business and domain expertise –  would be a good size.  You have to keep in mind that as you add investors in venture rounds, those investments usually come with a board seat.  And if the board gets too big, it’s not that useful.  It’s hard to have great conversations with big groups – and that’s what having a board is all about.  Getting into hard problems, looking ahead and coming up with steps for growth.  Amazon, the largest market cap company in the US (most days) has 10 people on their board.  Also beware of too many board observers.  Observers are in the room but don’t vote.

Advisory Board vs Board of Directors: What is the difference?  Governance and scope of engagement are the main differences.   Many companies have both types of boards.  Advisors often have specific domain expertise that is useful but are not necessarily company builder types.  Advisory board members should be set up to serve a set amount of time and then, if you pivot your business and that advisory board member doesn’t make sense for your business, there is a pre-arranged way to say goodbye.  There was also a thread about changing out independent board members or advisory board members. It’s never easy – the advice was to make sure you set up the compensation and board member agreement ahead of time so it’s clear what the steps are for all involved.  And, as with any type of management situation, stay very connected and transparent in your communication.  For your venture investors, it is very rare for a firm to trade out board members, and they are usually on your board for the long haul.  Pick your investors carefully, do as much diligence on the partner as they do on your company and test-drive independent directors as advisors first to get to know them and understand their value-add and chemistry with your team.

Why have a board so early?

Building a company is a group process, especially once you take outside capital and bring investors onto your board who now have a very vested interest in your success.  Founders and companies who don’t have the motion of spending time looking outside of the company for insight into problems and solutions can run into problems.  Venture investors at early stages are looking to partner and seeing the founder be forward thinking about running his or her business shows that there is a fit.

What is appropriate compensation for board members?

Investor board members generally do not receive compensation from the company but independent board members and advisory board members need to be compensated.  You would want to draw up agreements for each of these members that outlines the payment and vesting schedule – and puts some time limits in place for re-evaluation.  Typical compensation is a standard stock option grant in a range between .25-.5% of outstanding equity.  The amount should be the same for every director.

How do you choose board members?

When you think about your board – they will likely be with you for 10-15 years so you should think carefully about who those people are. This is also an important step in taking venture financing. You get money and assistance from a firm, but the partner is the one you will spend the most time with.  Get to know him/her and how they think before you go down that road.

For independent board members, the panel urged that founders think about choosing people with experiences different from your own. Your mentor at your old job is not a good fit – they shared that information with you already. That person is a friend and you can get advice for free from them without complicating things.

How do you run board meetings?

This starts before the board meeting. The group was unanimously in agreement that the board presentation should be sent around ahead of time (2-3 days) and you should expect that everyone will have read it ahead of time.  This means you can zero in on opportunities and challenges that you, your exec team and board members want to address (you should ask ahead if things stand out to them) and also use the time creatively to address bigger strategic questions/alternatives and tradeoffs you face.

How do you work with your board outside of board meetings?

Early and often was the advice on this!  Regular communication with board members is highly encouraged.  Send weekly or monthly updates (depending on size and your inclination) and don’t hide the bad news.  Put that upfront and be transparent.  Meet with board members outside of the board meeting 1:1 – that is where good ideas come up and you can more easily discuss challenges.  There were examples of a biweekly coffee with a director, a Sunday evening email that summarizes the week prior and pre-meetings with board members ahead of a monthly or quarterly meeting. One person said they usually send out 4-5 topics that could be discussed at a board meeting to see what board members are interested in.

Regular communication with board members is highly encouraged.  Send weekly or monthly updates (depending on size and your inclination) and don’t hide the bad news.  Put that upfront and be transparent.

Who from your company should be in a board meeting?

Remember the size discussion above? Keep that in mind but know that your board needs to hear from leaders in the company – they might want to meet with them 1:1 too. Pull the right people in to discuss issues and present their areas of the business – it’s great for your internal team to know the external team.

  • For more on this check out Len Jordan’s (timeless) TechCrunch post – just don’t comment on the photo’s role in the timeless comment!
  • For more events at Create33 – sign up to receive their newsletter!

Alan Smith is chair of Fenwick & West’s corporate practice. The firm provides comprehensive legal services to leading technology and life sciences companies — at every stage of their lifecycle — and the investors that partner with them.

 Forest Key is founder and CEO of Pixvana. Pixvana, a virtual reality solutions provider, helps enterprises develop cutting-edge approaches to solve business challenges in innovative ways. The company is venture-backed by Vulcan Capital, Madrona Venture Group, Microsoft, Cisco, Raine and Hearst Ventures.

Len Jordan is a managing director at Madrona Venture Group, an early stage venture firm investing in information technology with a regional focus on Seattle.  The firm has with nearly $1.6 billion under management. 

 

 

POSTED IN: Madrona News

Standing Ovation – Cloud Based Clinical Informatics

Pictured l-r S. Somasegar, Ted Kummert, Chris Picardo, Barry Wark (seated) Winston Brasor

We are excited to announce today our investment in Ovation.io, a company that is building the next-generation suite of cloud-based clinical informatics tools for the genomic and molecular testing industry. The company was founded by Barry Wark and Winston Brasor, building off of software that Barry originally built while a graduate student at the University of Washington in Seattle. Ovation’s mission is to provide modern tools to molecular testing labs, allowing them to automate their operations and workflow while simultaneously unlocking the opportunity within their data.

For the past couple years, Madrona has been thinking deeply about the intersection of the life sciences and computer science. We believe that there is a significant amount of innovation waiting to be realized when modern cloud infrastructure and data analytics capabilities meet the vast amount of data and research within the life science and biotech industries. In parallel, significant innovation in the speed and cost of genome sequencing technology has allowed researchers to acquire vast amounts of valuable data and use this to greatly accelerate research and drug development. Existing areas such as diagnostics and new areas such as precision medicine are both rapidly developing due to the proliferation and increasing usability of clinical and genomic data. Activities such as clinical trial recruitment, collecting real world data (“real world evidence” in FDA phrasing), and understanding exogenous health factors are also being re-conceived because of the huge amount of data being generated by the healthcare system. And at the end of the day, easing friction on these activities via modern software will lead to much better health outcomes for patients and data collection and management is at the heart of this process.

One of Ovation’s most important observations was that medical testing labs (and molecular labs in specific) are underserved by modern software. These labs are responsible for conducting the vast amount of tests that care providers order while treating patients. Large names such as Quest and LabCorp may be familiar but there are many independent testing labs taking on the bulk of this workload. Furthermore, independent labs also conduct the majority of molecular and genetic testing for patient diagnosis. Yet many of these labs are still run on legacy software systems that are cumbersome and inefficient and exist as a major point of friction in lab operations.

Ovation has built a modern SaaS solution targeted directly at the needs of these labs. Their product is a modern cloud-based clinical informatics system that handles all major functions: from patient registry, to managing sample workflows, to storing and organizing the data, and finally to managing the revenue and billing process. By implementing true vertical software, labs are much more efficient in their operations and can quickly measure and analyze their workflows and internal data to provide better services and care to patients. And most importantly, Ovation software offers labs the ability to utilize their clinical and genomic data to improve patient diagnostics and long term outcomes. Ovation is also continuing to build intelligence into their software – learning from workflows in order to continuously help automate the testing process for labs. At Madrona we call these types of software “intelligent applications” and Ovation is a prime example in a vertical that needs modern SaaS options.

We met Barry here in Seattle through Mike Self, of StagedotO, a new seed stage venture partnership and were delighted to find some of the themes we had been discussing internally to be at the crux of Ovation’s business. We could not be more excited to be partnering with Barry and Winston for the next step of the Ovation journey and we are thrilled to help them achieve their vision of unlocking genomic data and clinical informatics in the medical world.

POSTED IN: Madrona News

Innovation where Life Sciences and Computer Science Meet

The Pacific Northwest is a major hub of tech innovation.  It is also a hub for life sciences research, biotech and healthcare innovation.  The past several years have brought increasing convergence of these disciplines, most notably the nexus of life science, computer science and data science.  This combination has been a driver of new breakthroughs — i.e. use of machine learning in discovery, diagnostics and therapeutics.

Our region is home to two of the top market cap companies, Amazon and Microsoft, who are both leaders in cloud technologies. These companies are defining and building the scale infrastructure and platforms, including major advancements in Machine Learning (ML) and Artificial Intelligence (AI), for next generation applications. Major research institutions such as the Fred Hutchinson Cancer Research Center, Allen Institute for AI (Ai2), Allen Institute for Brain Science and a growing ecosystem of companies (e.g., Adaptive) are starting to leverage the power of data, algorithms and computing power to develop breakthrough research and products driving critical improvements in healthcare and global health.

The convergence is enabling new opportunities in the broader healthcare and life sciences markets – spanning from traditional healthcare IT to digital health to diagnostics to next generation therapeutics and automated scientific discovery.  We have already invested in several companies in this area – Saykara which is bringing NLP and AI to the world of medical scribes, Accolade which helps employees get the most out of their healthcare plan using software intelligence and people, and Envisagenics, the recipient of the Madrona/Microsoft AI prize which is applying AI and high-performance computing to uncover novel cures in RNA sequencing data.

In working with entrepreneurs and the local industry, we’ve looked at the broad market, divided it into “more healthcare” and “more life sciences”  and identified areas of specific interest where we see substantial opportunity for software and data-science/AI driven innovation and are within our expertise.  Our map of this intersection is below and we will highlight a couple areas of particular interest.

Diagnostics: In the area of diagnostics, ML and AI techniques are already empowering next generation clinical decision support services into the market.  The application of computer vision to radiology and pathology is one example. Companies such as Zebra, Viz.AI, Imagen, and others have had AI/ML based medical diagnostics achieve regulatory approval in areas such as stroke diagnosis, atrial fibrillation detection, fracture diagnosis, and others.  In the area of cancer diagnosis, new companies such as PAIGE and PathAI are making major strides. In the past year, we’ve seen an increase in new AI-powered offerings achieving regulatory approval in a broad range of diagnostics from stroke to wrist fracture to heart & lung related diagnostics and others.

Infrastructure: To support research and development of new drugs fueled by an understanding of genomics data, there are several important infrastructure categories.  One thing we’ve noted over the past year is that our software and infrastructure companies are seeing growth in this vertical.  One of these is Qumulo, which provides next generation file storage for institutions like the Carnegie Institution for Science which works with terabyte-size data sets alongside millions of tiny sequencing files.

Analytics: On the more traditional IT end of things, we see an opportunity for analytics that overlay systems for running labs, processes, healthcare systems and more to provide better insights and help drive operational efficiency and improved care. KenSci is a good example of a company working on analytics for large hospital systems.

Data: And, underlying each of these categories is a significant need for data.  Data is what will power diagnostic services development, drug discovery, clinical trial matching and many more clinical and research applications. There is a need and opportunity for data providers and ecosystems to leverage the data to drive the innovations we all foresee.  Existing players such as Prognos, Patients Like Me, Tempus, and RDMD are all working on this space and we are excited to see the next wave of innovation in data acquisition and management.

As 2019 unfolds we will continue to share our thoughts and if these areas are of interest to you, please engage us.

POSTED IN: Madrona News

Reaching your Audience – Session with The Verge

Last week we hosted Helen Havlak, Editorial Director of The Verge, to talk about the ever-changing world of digital media, social media, and reaching the audiences you want.  

The Verge is all about making technology news mainstream.  Most recently, they addressed some of the negativity and fear around the future of technology with Better Worlds, a series of 10 science fiction short stories with video and audio adaptations focused on a more hopeful future for technology.  

One of Helen’s responsibilities is to oversee The Verge engagement team.  With the philosophy that readers are using many different channels and might not visit your site, The Verge goes to its readers on the platforms where they live. For B to C companies, Helen offered both practical tips and strategic advice.  Here are some quick highlights.

 

  • Figure out what your audience wants – education, information, entertainment  – and then create the content around that. Doing a job for your audience is more important than your own marketing agenda.
  • Know what you have in terms of assets.  If your product or story doesn’t lend itself to photos – think hard about a channel like Instagram.  
  • Follow the fads, but invest cautiously – Facebook Groups for example were a big push in 2017, but many have been abandoned due to moderation challenges.  Remember Vine? And think about the future of newer platforms – how will they make money? (what’s in it for them to continue to support other people creating content on their site . . ).
  • Be skeptical of how different platforms count followers and engagement. The Verge sees more likes and comments on Instagram than on Twitter, although Twitter might report higher “impressions.” A YouTube video frequently has 5X as many minutes watched as the same “view” on Facebook.
  • Moderation is very important, especially on YouTube.  Turning off comments kills your placement in the algorithm, and not monitoring offensive comments can create a toxic environment and burn out your talent.  YouTube is an important audience, but make sure you have the resources to support it.
  • If you are producing a video or a podcast a week – create a schedule and stick to it.  Subscribers notice.
  • Know that your audience is mostly going to be on their phone and mostly going to be in an app owned by another company – figure out which of those channels work for you.
  • And while she didn’t talk about it – she showed it – measure measure measure  – that is how you see the trends of platforms that are on the rise or waning.

Photo credit to James Bareham // The Verge

POSTED IN: Madrona News

Why and How Intelligent Applications Continue to Drive Our Investing

Intelligent Applications have been and continue to be a focus of our investing.  These apps sit on top of the infrastructure a company chooses, the data they collect and curate, the machine learning they apply to the data and the continuous learning system they build.  In this deep dive we talk about why intelligent applications are a central component to our investing themes and where we see the opportunities for company creation and building.

Intelligent apps are applications that use data and machine learning to create a continuous learning system that delivers rich, adaptive, and personalized experiences for users. These intelligent apps range from “net-new” apps like those powering autonomous vehicles and automated retail stores to existing apps that are enhanced with intelligence, such as lead scoring in a CRM app or content recommendations in a media app.

Intelligent apps will have a massive impact on the way we work, live, and play, and we have already been blown away by the potential in what we are seeing companies build today. Some of the most exciting intelligent apps we have seen do at least one of the following:

Enable completely new behaviors

Some of the most impressive demonstrations of machine learning are those that use AI to create new business processes and markets that completely change the way people do things. One high-profile example is Amazon Go stores using computer vision to completely change the supermarket or convenience store experience by removing the checkout process.

Another great example is Textio. Textio offers an AI-powered ‘augmented writing platform’ which draws on massive amounts of historical data to help companies write better job descriptions that will attract higher quality applicants. Both of these examples use AI to create new processes that result in better experiences and better outcomes for their users.

Drive 10x (or better) process improvements

AI automation and insights can also be used to optimize existing processes and workflows. Automation using AI is at the cornerstone of what every enterprise is going through in terms of digital transformation.  For example, UiPath’s RPA platform allows companies to drastically reduce costs by automating a wide variety of software based tasks using UiPath’s “robots.” While the UiPath platform is early in its journey to becoming an intelligent app, it is already helping its customer drive 10x process improvements.

Suplari also uses AI to improve existing business processes, namely to analyze purchase behaviors to better understand how to drive cost reductions and manage supplier risks. While Suplari’s customers may have individual processes to reduce software costs through deduplication or to identify opportunities for savings in contract renewals, using AI to proactively identify the best opportunities allows their customers to realize large efficiencies in their procurement processes.

Integrate silos (data and workflows) and capture value

Another great opportunity for AI companies is to combine data and processes to allow companies to combine different parts of the value chain and capture more value. For example, Affirm uses machine learning to approve consumer loans and uses these loans to help ecommerce companies improve shopping cart conversion rates.

One of our portfolio companies, Amperity, literally combines different silos of customer data.  Companies that have customer data stored in disparate systems and tools can’t easily leverage this data to get a full picture of their customer base. Intelligently stitching these silos together drives significant business results for Amperity’s clients who can now clearly see the stitched 360-view of their customers and use it to market and sell products in a more intelligent way.

Trends Converge

Now is an exciting time for investors and entrepreneurs to be focusing on intelligent applications because of the momentum and growth of several important technology trends:

  • Massive computational power and low-cost storage are creating the infrastructure to train machine learning models
  • More data is generated and stored than ever before in many different fields like healthcare, autonomous systems, and media
  • Availability of good-enough capabilities at the edge to do a lot of the inferencing work at the edge as opposed to having to round-trip to the cloud
  • Continued improvement and development in tools and frameworks make it easier for companies and developers to begin using machine learning
  • New “user interfaces” using voice, vision, and touch are bridging the gap between the digital and physical world

As these trends make it easier for entrepreneurs to build intelligent applications, we have been developing our own frameworks to understand how all of these pieces fit together to create value for customers. Generally, we think about the intelligent application ecosystem in three main parts:

  • The Data Platform Layer
  • The Machine Learning Platform Layer
  • The Intelligent Applications and “Finished Services” Layer

The Machine Learning Platform Layer

As an early believer in the potential of AI and machine learning, Madrona has made several investments in the machine learning platform layer, including companies like Turi, Lattice, and Algorithmia. This layer of the intelligent app stack is meant to make it easier for other developers and applications to make use of machine learning by providing the tools and automating tasks such as model training, model deployment, and model management.

The ML platform includes machine learning frameworks like TensorFlow and PyTorch, managed services and tools like Amazon Sagemaker and TVM, as well as “Model as a Service” providers in the form something like AWS Marketplace that can help developers and companies develop and deploy ML models in specific environments. While many of these tools have been developed by large companies or acquired by large companies, we believe there continues to be interesting opportunities at this layer because deploying and managing machine learning systems continues to be very difficult.

As an example, while the major cloud providers have made large investments in software and hardware to train ML models in the cloud, using those models for inference at the edge continues to be a difficult problem on resource-constrained devices. Xnor.ai is a portfolio company in this segment that uses software optimizations to improve the quality of machine learning predictions on edge devices that have limited power or bandwidth.

Overall, we believe that while frameworks and tools have been improving, advanced techniques like reinforcement learning still need frameworks and tools that are easier to use, and there are many interesting opportunities to continue improving the ML platforms that intelligent apps depend on.

The Data Platform Layer

A precursor to using AI effectively and building intelligent applications is having a “data” strategy.  Having a unique data strategy that could be a combination of public data sets and proprietary data sets enables companies to provide unique and differentiated value.  This is a necessary first step, before you can use the data to train models and build a continuous learning system that is a core part of building an intelligent application.

Within the Data Platform layer, we think of companies and products from portfolio companies, Datacoral and Snowflake, as well as those from Databricks and Amazon’s Redshift, which offer customers different ways to connect, transform, warehouse, and analyze data in order to be used in an ML platform. What we’ve seen at this layer of the stack is that getting data into the right place, in the right format, in order to be used for machine learning continues to be very difficult, and simplifying this process is extremely valuable to customers.

Additionally, access and ownership to data itself is a key part of the data platform layer. By this, we mean that companies need to be thoughtful about their data strategies in order to find ways to gain access to, generate, or combine different data sources in order to create unique data assets. As we are seeing frequently in the news these days, companies also need to be thoughtful about data privacy and making sure customers understand what data is being used, shared, and how.

The lines between the Data Platform Layer, the ML Platform Layer, and Intelligent Apps themselves can be quite blurry, especially as companies try to offer their customers a broader set of services or learn their way into new customer needs. However, we do see a distinction between companies that are focused on helping customers manage their data vs. helping customers manage their ML models.

 

Ultimately, we are looking for companies that can benefit from the virtuous data cycle – where more data creates better user experiences, leading to better user engagement, leading to more data, and ultimately better user experiences again.

Intelligent Applications and “Finished Services” Layer

Within the Intelligent Applications and Finished Services layer, there are several ways to segment the market. We like to think about verticals – applications that focus on a specific industry such as healthcare or insurance – and horizontals – cross-industry applications such as marketing automation or robotic process automation. One of the principles that we follow when looking for these types of opportunities is to find areas where data is becoming digitized and/or more data is being collected than ever before.

For example, one promising vertical for intelligent apps is healthcare. Technology and regulatory trends have driven the healthcare field to rapidly digitize many different types of records – from basic medical histories, to insurance claims, to x-rays, MRI scans, and ‘omics’ data (e.g., genomics, proteomics, biomics). This digitization of healthcare is creating new levels of visibility into patient and population health data, and ML will be a critical tool to help decision makers make sense of these new data sources.

Workforce productivity is another promising area for horizontal intelligent applications because more data is digitized than ever before in HR and employee engagement across industries. One example of a horizontal intelligent app is Madrona Venture Labs spinout company, UpLevel, which uses unstructured data from tools like Slack to help managers get better insights on how to best engage their teams and drive productivity.

In addition to vertical and horizontal apps for business users, we also include other types of “finished services” in this bucket. This can include services like Amazon Rekognition or Amazon Forecast, which help application developers add image and video analysis or time series forecasting models to other applications. In this case, the end customer for a product may not be a consumer, but the product is a “finished service” which can be plugged into a customer-facing application.

In each of these use cases, we are looking to find companies that deeply understand customer pain points and use machine learning as a tool to solve customer problems, rather than starting with a technology and searching for use cases.

Areas of Opportunity

We believe that every successful application built today will be an intelligent application, and that is why we think there is a huge amount of opportunity for entrepreneurs in this space. In particular, we would love to see more companies that are building at the nexus of multiple large markets, companies with unique data strategies, and companies with great ML teams (because AI continues to be very difficult). Four specific areas where we are excited to meet new companies are:

  • AI for Healthcare – More healthcare data is digitized and stored than ever before, and this is creating massive opportunities to reduce costs while improving quality of care and operations. The intersection of the biological sciences with computer science is going to be a difficult area to break through, but the potential value created will be huge, and we are looking for entrepreneurs who are ready to take on these challenges.
  • AI for Work – More and more, companies want to measure and become data-driven about productivity, hiring, and employee wellness. Traditionally, HR and workforce data has been incredibly hard to collect and analyze, but new applications like Slack and Workday are creating opportunities for startups like Polly and UpLevel to analyze workplace data to generate insights for employees and managers.
  • Automation – Robotic Process Automation (RPA) vendors are one set of companies building early intelligent apps that can analyze a business process and improve productivity through automation, but they will not be the last. We think there will also be opportunities to build vertical “RPA-like” businesses in specific industries, automation of manual work that can be dangerous and expensive, and new types of autonomous systems like autonomous vehicles.
  • “End-to-End AI” – Many companies have a section of their pitch explaining how valuable their data will be. We always encourage companies to think about the best use cases for their data, and, if it makes sense, execute on those use cases themselves. Some of our favorite examples in this category are companies like Climate Corp, which started with an ML system for predicting weather, found that they could use their predictions to sell weather insurance to farms, and eventually built an end-to-end farm management software system to capture more data and use it to write insurance policies.

Conclusion

During a recent CIO roundtable, we debated whether machine learning was an over-hyped or under-hyped technology trend. The answer in most people’s minds was both. There are incredibly high expectations for machine learning, and many of those expectations are not grounded in the reality of what ML can do today.

However, we believe that as we move forward, the ability to build new applications and continuously improve systems and processes using machine learning will be a core part of any app, and machine learning will be immensely impactful in every fabric of the society that we work and live in.

Current or previous Madrona Venture Group portfolio companies mentioned in this blog post:  Algorithmia, Amperity, Datacoral, Lattice, Snowflake, Suplari, Turi, Xnor.ai, UIpath

POSTED IN: Madrona News

Investment Themes for 2019

2018 was a busy year for Madrona and our portfolio companies. We raised our latest $300 million Fund VII, and we made 45 investments totaling ~$130 million.  We also had several successful up-rounds and company exits with a combined increase of over $800 million in fund value and over $600 million in investor realized returns.  We don’t see 2019 letting up, despite the somewhat volatile public markets.  Over the past year we have continued to develop our investment themes as the technology and business markets developed and we lay out our key themes here.

For the past several years, Madrona has primarily been investing against a 3-layer innovation stack that includes cloud-native infrastructure at the bottom, intelligent applications (powered by data and data science) in the middle, and multi-sense user interfaces between humans and content/computing at the top. As 2019 kicks off, we thought it would be helpful to outline our updated, 4-layer model and highlight some key questions we are asking within these categories to facilitate ongoing conversations with entrepreneurs and others in the innovation economy.

For reference, we published our investment themes in previous years and our thinking since then has both expanded and become more focused as the market has matured and innovation has continued.  A quick scan of this prior post illustrates our on-going focus on cloud infrastructure, intelligent applications, ML, edge computing, and security, as well as how our thinking has evolved.

Opportunities abound within AND across these four layers.  Infinitely scalable and flexible cloud infrastructure is essential to train data models and build intelligent applications.  Intelligent applications including natural language processing models or image recognition models power the multi-sense user interfaces like voice activation and image search that we increasingly experience on smartphones and home devices (Amazon Echo Show, Google Home).  Further, when those services are leveraged to help solve a physical world problem, we end up with compelling end-user services like Booster Fuels in the USA or Luckin Coffee in China.

The new layer that we are spending considerable time on is the intersection between digital and physical experiences (DiPhy for short), particularly as it relates to consumer experiences and health care.  For consumers, DiPhy experiences address a consumer need and resolve an end-user problem better than a solely digital or solely physical experience could.  Madrona companies like Indochino, Pro.com and Rover.com provide solutions in these areas.  In a different way, DiPhy is strongly represented in Seattle at the intersection of machine learning and health care with the incredible research and innovations coming out of the University of Washington Institute for Protein Design, the Allen Institute and the Fred Hutch Cancer Research Center. We are exploring the ways that Madrona can bring our “full stack” expertise to these health care related areas as well.

While continuing to push our curiosity and learning around these themes, they are guides not guardrails.  We are finding some of the most compelling ideas and company founders where these layers intersect. Current company examples include voice and ML applied to the problem of physician documentation into electronic medical records (Saykara), integrating customer data  across disparate infrastructure to build intelligent customer profiles and applications (Amperity), or cutting edge AI able to run efficiently in resource constrained edge devices (Xnor.ai).

Madrona remains deeply committed to backing the best entrepreneurs, in the Pacific NW, who are tackling the biggest markets in the world with differentiated technology and business models.  Frequently, we find these opportunities adjacent to our specific themes where customer-obsessed founders have a fresh way to solve a pressing problem.  This is why we are always excited to meet great founding teams looking to build bold companies.

Here are more thoughts and questions on our 4 core focus areas and where we feel the greatest opportunities currently lie. In subsequent posts, we will drill down in more detail into each thematic area.

Cloud Native Infrastructure

For the past several years, the primary theme we have been investing against in infrastructure is the developer and the enterprise move to the cloud, and specifically the adoption of cloud native technologies.  We think about “cloud native” as being composed of several interrelated technologies and business practices:  containerization, automation and orchestration, microservices, serverless or event-driven computing, and devops.  We feel we are still in the early-middle innings of enterprise adoption of cloud computing broadly, but we are in the very early innings of the adoption of cloud native.

2018 was arguably the “year of Kubernetes” based on enterprise adoption, overall buzz and even the acquisition of Heptio by VMware.  We continue to feel cloud native services, such as those represented by the CNCF Trail Map, will produce new companies supporting the enterprise shift to cloud native.  Other areas of interest (that we will detail in a subsequent post) include technologies/services to support hybrid enterprise environments, infrastructure backend as code, serverless adoption enablers, SRE tools for devops, open source models for the enterprise, autonomous cloud systems, specialized infrastructure for machine learning, and security.  Questions we are asking here include how the relationship between the open source community and the large cloud service providers will evolve going forward and how a broad-based embrace of “hybrid computing” will impact enterprise customer product/service needs, sales channels and post-sales services.

For a deeper dive click here.

Intelligent Applications with ML & AI 

The utilization of data and machine learning in production has probably been the single biggest theme we have invested against over the past five years.  We have moved from “big data” to machine learning platform technologies such as Turi, Algorithmia and Lattice Data to intelligent applications such as Amperity, Suplari and AnswerIQ.  In the years ahead, “every application is intelligent” will likely be the single biggest investment theme, as machine learning continues to be applied to new and existing data sets, business processes, and vertical markets.  We also expect to find interesting opportunities in services that enable edge devices to operate with intelligence, industry-specific applications where large amounts of data are being created like life sciences, services to make ML more accessible to the average customer, as well as emerging machine learning methodologies such as transfer learning and explainable AI.  Key questions here include (a) how data rights and strategies will evolve as the power of data models becomes more apparent and (b) how to automate intelligent applications to be fully managed, closed loop systems that continually improve their recommendations and inferences.

For a deeper dive click here.

Next Generation User Interfaces

Just as the mouse and touch screen ushered in new applications for computing and mobility, new modes of computer interaction like voice and gestures are catalyzing compelling new applications for consumers and businesses. The advent of Alexa Echo and Show, Google Home, and a more intelligent Siri service have dramatically changed how we interact with technology in our personal lives.  Limited now to short simple actions, voice is becoming a common approach for classic use cases like search, music discovery, food/ride ordering and other activities.  Madrona’s investment in Pulse Labs gives us unique visibility into next generation voice applications in areas like home control, ecommerce and ‘smart kitchen’ services. We are also enthused about new mobile voice/AR business applications for field service technicians, assisted retail shopping (E.g., Ikea’s ARKit furniture app) and many others including medical imaging/training.

Vision and image recognition are also rapidly becoming ways for people and machines to interact with one another as facial recognition security on iPhones or intelligent image recognition systems highlight. Augmented and virtual reality are growing much more slowly than initially expected, but mobile phone-enabled AR will become an increasingly important tool for immersive experiences, particularly visually-focused vocations such as architecture, marketing, and real estate.  “Mobile-first” has become table stakes for new applications, but we expect to see more “do less, but much better” opportunities both in consumer and enterprise with elegantly designed UIs.  Questions central to this theme include (a) what ‘high-value’ new experiences are truly best or only possible when voice, gesture and the overlay of AR/VR/MR are leveraged? (b) what will be the limits of image (especially facial recognition) in certain application areas, (c) how effective can image-driven systems like digital pathology be at augmenting human expertise, and (d) how will multi-sense point solutions in the home, car and store evolve into platforms?

For a deeper dive click here.

DiPhy (digital-physical converged customer experiences)

The first twenty years of the internet age were principally focused on moving experiences from the physical world to the digital world. Amazon enabled us to find, discover and buy just about anything from our laptops or mobile devices in the comfort of our home.  The next twenty years will be principally focused on leveraging the technologies the internet age has produced to improve our experiences in the physical world. Just as the shift from physical to digital has massively impacted our daily lives (mostly for the better), the application of technology to improve the physical will have a similar if not greater impact.

We have seen examples of this trend through consumer applications like Uber and Lyft as well as digital marketplaces that connect dog owners to people who will take care of their dogs (Rover).  Mobile devices (principally smartphones today) are the connection point between these two worlds and as voice and vision capabilities become more powerful so will the apps that reduce friction in our lives.  As we look at other DiPhy sectors and opportunities, one where the landscape will change drastically over the coming decades is physical retail.  Specifically, we are excited about digital native retailers and brands adding compelling physical experiences, increasing digitization of legacy retail space, and improving supply chain and logistics down to where the consumer receives their goods/services.  Important questions here include (a) how traditional retailers and consumer services will evolve to embrace these opportunities and (b) how the deployment of edge AI will reduce friction and accelerate the adoption of new experiences.

For a deeper dive click here.

We look forward to hearing from many of you who are working on companies in these areas and, most importantly, to continuing the conversation with all of you in the community and pushing each other’s thinking around these trends.  To that end, over the coming weeks we will post a series of additional blogs that go into more depth in each of our four thematic areas.

Matt, Tim, Soma, Len, Scott, Hope, Paul, Tom, Sudip, Maria, Dan, Chris and Elisa 

(to get in touch just go to the team page – our contact info is in our profiles)

POSTED IN: Madrona News

Why We Are Doubling Down On Shyft

We are excited to announce today our Series A investment in Shyft.

Since investing in Shyft’s seed round nearly two years ago, we have watched Brett Patrontasch (CEO) and team continue to make impressive progress against their goal of reinventing the way hourly workers manage their shifts and the way national employers both manage and support their workforce.

We originally met Brett through our involvement and support of the TechStars program.  Shyft taps into our love of supporting scrappy entrepreneurs using technology to change people’s lives for the better.  Through a mobile cloud connected application, Shyft enables a workforce that has little control over their schedule to take control by easily swapping shifts.  Shyft started as a ground up platform that appealed to workers at Starbucks and many other retail chains, and, over the past two years, managers have taken note.

Shyft has responded by creating an enterprise software solution that enables retail outlets to manage their workforce while providing the flexibility that employees value.

This all comes at a crucial time in how the expectations of the modern workforce are changing and along with that, the move to create rules that protect this growing workforce.  Cities and legislatures around the country are taking a close look via Secure Scheduling (also known as Predictive Scheduling) at how these hourly workers are scheduled – and creating protections that require some stability of schedule.  This is a great thing, and as companies are required to support these regulations they need solutions like Shyft.

The proof is in the customers – and Gap has adopted the Shyft platform as their workforce management platform for all of their brands – Old Navy, Banana Republic, Althleta.  Companies such as the Gap are adopting Shyft because the app creates real collaboration amongst employees which helps with productivity and general satisfaction.

We are investing alongside Ignition Partners for this round and it is great to work with them again.

The team’s relentless focus on product and end user experience is inspiring and is winning them new customers every day. Brett and his team are extremely passionate about the market and their product and we believe that they’ve created a game changing company poised for continued success.

POSTED IN: Madrona News

Apptio and TBM’s Next Journey

The journey from Day One to building a successful customer base, company and market category is exhilarating! As company building partners, we are honored to work with great entrepreneurial teams every day. One of the most special companies and groups of people we have ever worked with is Apptio. Today is a major moment in Apptio’s 11-year company life and is the beginning of the next phase of their journey.

Apptio’s five founders, led by CEO Sunny Gupta, started the company in the fall of 2007. Their passion was to help Information Technology (IT) and finance organizations at large enterprises better manage the business of IT. As virtualization, and later cloud computing, were increasingly adopted in big companies, the technology business leaders didn’t have adequate management tools. Apptio started by categorizing and connecting the IT data around hardware, software and services costs with the finance and accounting cost systems. Over time this costing service was combined with SAAS-based planning, decisioning and agile learning systems. And, Apptio became the underlying system of record for enterprise CIOs. Within a few years, they were servicing several of the largest customers in the world and pioneered the category of Technology Business Management (TBM).

Sunny Gupta and I first met in 2001. From that first meeting, we both somehow knew that we were going to work together for many years to come.

He was and is one of those rare innovators who combines customer-centricity, product passion and genuine humility in an authentic way. And, he inspires teams to achieve their full potential.

We first worked together at Performant which was my first VC investment. In the spring of 2003 Performant was acquired.  In early 2005, Sunny, Jeff Gerber and I partnered to found and seed iConclude to automate IT “runbooks”. During those next few years, we added a great CFO in Kurt Shintaffer and outstanding co-investors Tom Bogan (then at Greylock) and Ravi Mohan from Shasta Ventures. iConclude was then acquired by Opsware.

While at Opsware, Sunny got increasing exposure to enterprise CIOs and the finance people who were helping understand and allocate the IT costs to different business units and teams. When Opsware was bought by HP in summer 2007, Sunny knew that a bigger opportunity was on the horizon to build a systematic way to align IT business units and finance. So, in the fall of 2007, we “brought the band back together” and started Apptio.

Apptio’s 11-year journey to date has, like every start up, included great mountaintop moments and a few low points. The highlights included early customer wins at companies like Cisco, Goldman Sachs and First American. Equally important were incredible executive hires including Larry Blasko, Chris Pick and Dione Hedgpeth. And, the company helped create and build a movement around cost transparency and data-driven decision making known as Technology Business Management. These successes were balanced with an early over-reliance on platform technology over finished SAAS apps and the occasional executive hire who proved not to be the best fit. But, by almost any measure, Apptio is an amazing success story.

On the financing front, Apptio raised several private rounds of private capital – each at a higher valuation. Then, in September 2016, the company went public at $16 per share and opened the first trading day at almost $24 per share. I will always cherish the celebration in New York City with the Apptio founders, team members customers and board!

Apptio missed Wall Street’s earnings expectations their second quarter as a public company causing some investors to lose faith and the stock to drop to under $12. But, Sunny and the Apptio team showed their resilience by clarifying priorities, building use-case specific applications and improving operational execution. In time, the business regained growth and momentum and the stock rallied back above the IPO price.

Throughout the Apptio journey, strategic and financial partners have had a strong desire to work with and invest in the company. Apptio’s strategic perspective on the enterprise journey to hybrid cloud and breadth of CIO relationships may be unmatched. Today, the company announced that it has entered into an agreement to be acquired by Vista Equity at a $38 share price or total equity value of approximately $1.94 billion.

Vista has a strong track record of investing in quality SAAS software companies like Marketo and Cvent and building even more value in those businesses.  When the acquisition closes, Sunny and the Apptio team will partner with Vista so they can best help enterprise customers fully embrace their cloud computing applications over the long-term. And, I am highly confident they will be aligned with their new investor partners to do just that!

For myself and Madrona, it is a day of mixed emotions. When the acquisition is finalized, we will no longer have a direct role with Apptio. I will greatly miss our spirited strategy discussions, the problem solving on hard challenges and the celebrations of successes. Which really means, I will miss the more frequent interactions with Apptio’s amazing board, executives and broader team. I can’t wait to see all the great things Apptio does under Sunny’s leadership in the years ahead.

Finally, I have no doubt that the Apptio team will be lifelong friends. Whether we are helping to build other companies together, making a positive difference in our community or cheering on our beloved Seahawks, we will be serving the Seattle innovation ecosystem for many years to come. And, in my heart, I will always be an Apptian!

Additional Information and Where to Find It

This communication is being made in respect of the proposed transaction involving Apptio, Inc. (“Apptio”) and Bellevue Parent, LLC (“Bellevue”).  In connection with the proposed transaction, Apptio intends to file and furnish relevant materials with the Securities and Exchange Commission (the “SEC”), including a proxy statement on Schedule 14A. Promptly after filing its definitive proxy statement with the SEC, Apptio will mail the definitive proxy statement and a proxy card to each stockholder of Apptio entitled to vote at the special meeting relating to the proposed transaction. This communication is not a substitute for the proxy statement or any other document that Apptio may file with the SEC or send to its stockholders in connection with the proposed transaction. The proxy statement described above will contain important information about the proposed merger and related matters. BEFORE MAKING ANY VOTING DECISION, STOCKHOLDERS OF Apptio ARE URGED TO READ THESE MATERIALS (INCLUDING ANY AMENDMENTS OR SUPPLEMENTS THERETO) AND ANY OTHER RELEVANT DOCUMENTS IN CONNECTION WITH THE PROPOSED TRANSACTION THAT Apptio WILL FILE WITH THE SEC WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT Apptio AND THE PROPOSED TRANSACTION. The definitive proxy statement and other relevant materials in connection with the proposed transaction (when they become available), and any other documents filed by Apptio with the SEC, may be obtained free of charge at the SEC’s website (http://www.sec.gov) or at Apptio’s website (http://www.apptio.com) or by contacting Apptio’s Investor Relations at ir(Replace this parenthesis with the @ sign)apptio.com.

Participants in the Solicitation

 Apptio and its directors and executive officers may be deemed to be participants in the solicitation of proxies from Apptio’s stockholders with respect to the proposed transaction. Information about Apptio’s directors and executive officers and their ownership of Apptio’s common stock is set forth in Apptio’s proxy statement on Schedule 14A filed with the SEC on April 19, 2018, and Apptio’s Annual Report on Form 10-K for the fiscal year ended December 31, 2017, which was filed with the SEC on February 21, 2018. Additional information regarding the potential participants, and their direct or indirect interests in the proposed transaction, by security holdings or otherwise, will be set forth in the proxy statement and other materials to be filed with SEC in connection with the proposed transaction.

Notice Regarding Forward-Looking Statements

 This communication, and any documents to which Apptio refers you in this communication, contains not only historical information, but also forward-looking statements made pursuant to the safe-harbor provisions of the Private Securities Litigation Reform Act of 1995. These forward-looking statements represent Apptio’s current expectations or beliefs concerning future events, including but not limited to the expected completion and timing of the proposed transaction, expected benefits and costs of the proposed transaction, management plans and other information relating to the proposed transaction, strategies and objectives of Apptio for future operations and other information relating to the proposed transaction. Without limiting the foregoing, the words “believes,” “anticipates,” “plans,” “expects,” “intends,” “forecasts,” “should,” “estimates,” “contemplate,” “future,” “goal,” “potential,” “predict,” “project,” “projection,” “target,” “seek,” “may,” “will,” “could,” “should,” “would,” “assuming,” and similar expressions are intended to identify forward-looking statements. You should read any such forward-looking statements carefully, as they involve a number of risks, uncertainties and assumptions that may cause actual results to differ significantly from those projected or contemplated in any such forward-looking statement. Those risks, uncertainties and assumptions include, (i) the risk that the proposed transaction may not be completed in a timely manner or at all, which may adversely affect Apptio’s business and the price of the common stock of Apptio, (ii) the failure to satisfy any of the conditions to the consummation of the proposed transaction, including the adoption of the merger agreement by the stockholders of Apptio and the receipt of certain regulatory approvals, (iii) the occurrence of any event, change or other circumstance or condition that could give rise to the termination of the merger agreement, (iv) the effect of the announcement or pendency of the proposed transaction on Apptio’s business relationships, operating results and business generally, (v) risks that the proposed transaction disrupts current plans and operations and the potential difficulties in employee retention as a result of the proposed transaction, (vi) risks related to diverting management’s attention from Apptio’s ongoing business operations, (vii) the outcome of any legal proceedings that may be instituted against us related to the merger agreement or the proposed transaction, (viii) unexpected costs, charges or expenses resulting from the proposed transaction, and (ix) other risks described in Apptio’s filings with the SEC, such as its Quarterly Reports on Form 10-Q and Annual Reports on Form 10-K.  Forward-looking statements speak only as of the date of this communication or the date of any document incorporated by reference in this document. Except as required by applicable law or regulation, Apptio does not assume any obligation to update any such forward-looking statements whether as the result of new developments or otherwise.

POSTED IN: Madrona News

Allen School Industry Affiliates Day and the 2018 Madrona Prize

Tim Porter, Madrona, and Hank Levy, Allen School,  bracket the winners of the Madrona Prize and Runners Up

Again this year, it was a fun and inspiring night at UW Allen School of Computer Science & Engineering.  Every year we look forward to the day of presentations and then the frantic round robin of poster sessions in the evening.  It is inspiring and humbling to attend and listen to the invention and creative thinking that goes on at the Allen School.  And this year there were many breakthrough projects that spanned disciplines and schools at the University of Washington.  We also see this collaboration and collision of disciplines, particularly data science, computer science and life science,  in companies being built in the greater Seattle region and it is something we are excited about investing in as we move into our next 20 years.

Every year we award the Madrona prize to the most commercially viable ideas presented.  This year the winners were as follows.

Madrona Prize Winner

EMBARKER: A hierarchical Bayesian approach empowering big data with prior knowledge for expression marker discovery and its application to Alzheimer’s disease

Safiye Celik, Josh C. Russell, Cezar R. Pestana, Ting-I Lee, Shubhabrata Mukherjee, Paul K. Crane, C. Dirk Keene, Jennifer F. Bobb, Matt Kaeberlein

Advisor: Su-In Lee

 

Runners Up

Puddle: A System for High-Level Microfluidic Programming
Max Willsey, Ashley Stephenson, Chris Takahashi, Pranav Vaid, Bichlien Nguyen, Michal Piszczek, Christine Betts, Sharon Newman, Sarang Joshi

Advisors: Karin Strauss and Luis Ceze

Slim: OS Kernel Support for a Low-Overhead Container Overlay Network
Danyang Zhuo, Kaiyuan Zhang, Yibo Zhu, Hongqiang Harry Liu, Matthew Rockett,

Advisors: Arvind Krishnamurthy and Tom Anderson

Implantable Wireless Brain-Computer Interface
Jared Nakahara, Vaishnavi Ranganathan, Soshi Samejima, Nicholas Tolley, and Chet Moritz. See this for background on this poster.

Advisor: Joshua Smith

Press Release

POSTED IN: Madrona News

Paul Allen – A great man of science, culture, sports and a Seattle icon

Paul Allen is best known as the co-founder of Microsoft which alone is an incredibly important contribution to the world and how we live our lives now.  But he continued to work and arguably put in an entire life’s work after leaving his day to day role at Microsoft.  He had a vision for Seattle that revitalized a huge portion of the city and made way for one of the most successful companies in the world, Amazon, to establish headquarters in the city.

He was a visionary who saw the potential in everything from abandoned buildings and underutilized real estate to the ability of cultural, educational and sports institutions to energize a city.  He also continued to believe in the power of science to improve the lives of humans  – founding the Allen Institutes for Artificial Intelligence, Brain Science and Cell Science – all of which are focused on advancing our understanding of the world around us.

Madrona collaborated with Allen and specifically his company Vulcan over the years.  We co-invested in many companies including Decide, Igneous, Peach, Pixvana, Redfin, Turi, Unearth, Xnor.ai, Kitt.ai and Wrench.

“Paul Allen really was a true leader in our city, using his intellect, passions and wealth, to infuse the area with new life.  The music festival he started a couple years ago reflects his love of one of the pieces of musical cultural history that goes back to the 1920s here in Seattle, while his support of the Allen School for Computer Science and Engineering at the UW reflects his investment in the future of the young people of our region,” commented Tom Alberg.

He will be greatly missed.

POSTED IN: Madrona News

When the Digital World Meets the Physical World to Solve Real World Problems

We have been experiencing the modern era of our digital lives merging with the physical world, what I call Di-Phy, since the first iPhone in 2007.  This blending of the two worlds is all around us, through wearable exercise devices, package or luggage delivery service updates, car sharing and even food ordering.  But we are seeing through new advanced technologies an incredible expansion and success in these Di-Phy services.  At Madrona we have invested in this market heavily (Rover, Redfin, and Impinj to name just a few) and we are now seeing three trends come together which will move this confluence to a new level and make DiPhy integral in our lives and a change agent for new industries.

  • The ability to compute and intelligently interact at the edge
  • The near ubiquity of smart devices that run apps connecting our digital and physical worlds
  • The development and deployment of state of the art sensors & robotics

These developments combined with cloud technologies that run as a service enable the building of more automated and intelligent applications that make our lives easier and better.

To illustrate the types of solutions beginning to emerge, let’s look at two different industries that are seeing massive changes due to the revolution in DiPhy  – agriculture & mobile fueling – and a platform for running deep learning models at the edge.

Agricultural Automation

Many use cases for applied machine learning, robotics and general automation in the commercial world are only beginning to come to market.  One area we are seeing a lot of innovation is in agriculture – these solutions span preparing the ground, planting, weeding, and caring for the nation’s food.  One of Madrona’s newest investments is both a bet on this trend and on an incredibly talented serial entrepreneur.

TerraClear is a company recently launched by Brent Frei to take on the difficult and never ending task of rock removal on farmland.  TerraClear is utilizing state of the art sensors, machine learning, GPS, and robotics to bring the world of software and technology to the very physical task of removing rocks from fields.  This combination of digital and physical has the potential to have an incredible impact on one of the industries that has sometimes been slower to adopt technology but is more aggressively embracing innovation in recent years.  And Brent is the guy to do this – he is a charismatic, serial entrepreneur who started two companies which grew to be public companies – Smartsheet and Onyx Software.  He is also from a strong, multigenerational farming family in Idaho.  Having backed Brent before from day one, we are excited to see the innovations and efficiencies that TerraClear will bring to market.

Mobile Fueling

For decades consumers and businesses had to go to the gas station to fill up their vehicle.  But, that solution was inconvenient, time consuming and environmentally unfriendly.  With the power of mobile phones, GPS and route optimization, a new group of companies that deliver fuel to your vehicle on demand have emerged.  The early leader in this category is Booster Fuels.  Booster’s Founder and CEO Frank Mycroft had the initial insight that the combination of the digital world and GPS technology with the economics of mobile fueling could eliminate this annoying chore and be a good business.  He and his team have meticulously designed a mobile fuel delivery system that enables consumers to have their cars filled while they are at work.  By delivering to corporate campuses they can efficiently fill over 12 cars per hour in a manner that is superior to the gas station, cost comparable and very safe.  Regulators have learned that it is more environmentally friendly and safe and have become strongly supportive of Booster.

Booster also learned that their specially designed systems, vehicles and drivers could provide a superior service to commercial fleets.  This extension of their business is allowing them to expand rapidly to more geographies and provide related services.  Software, data, employee training, and vehicles with modern sensors all combine to make such a digital meets physical solution a success

Deep Learning at the Edge

Deep learning models are a fundamental breakthrough in how machines can be trained to recognize images for a broad variety of autonomous use cases.  The challenge with image recognition models is that they generally require significant compute, memory and power resources to run the models.  In order to unlock the power of these digital models to run and address real world problems at the edge, a solution was needed to build and compress the models and match them to the resources available.  These use cases also protect privacy and reduce latency relative to models require cloud resources.

In our portfolio, XNOR.ai has broken through with their data model pipeline and “binarization” capabilities to enable clearly superior models that run at the edge on devices with limited if any connectivity.  Ali Farhadi and Mohammad Ragestrani developed these techniques with their team at Paul Allen’s Institute for Artificial Intelligence in Seattle.  These models can be run on a mobile phone to improve picture taking.  They can be run on a security camera to distinguish between a vehicle, person or animal.  They can be run in a store like Amazon Go or Bingo Box to enable autonomous shopping. And, they can be used on home appliances to identify specific food items.  The applications are nearly limitless and will redefine how consumers interact with all kinds of physical world items.  More fundamentally, they will be required as part of the “sensor fusion” that unlocks the full potential of autonomous vehicles. Companies like Xnor.ai are creating the building blocks for breakout services in the DiPhy realm.

Focusing on the Customer and their Problems

An important key to success in this new generation of digital meets physical world solutions is to be “customer pulled” rather than “technology pushed.”  By understanding a customer’s need to remove rocks from farmland, fill their car up with fuel, or run image detection models at the edge successful companies are being built.  Being enamored with location aware devices, deep learning models or even the blockchain does not lead directly to identifying and understanding a real-world problem and building a superior solution.  In fact, though we didn’t talk about it here, we believe blockchain will play an important role in DiPhy. The real power of blockchain is likely using digital tokens to reduce friction with the ownership and utilization of assets in the physical world.  But, that is a topic for a future post.

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Kicking off Madrona Engineering Community Meetups with a Side of DevOps

If there is one topic that is on every engineering leader’s mind, regardless of the size of the company, it is how to ship more code more often and how to run that code reliably and efficiently. So, it was a no-brainer that we chose to kick off the first of our Madrona Engineering Community (MEC) meetups with an event on DevOps and Agile practices.

MEC meetups foster ongoing knowledge sharing and networking among engineering leaders across the Madrona portfolio. Our members are VPs of Engineering and CTOs across our portfolio companies.

As far as first events go, we started off with a bang! We had a packed house with over fifty of our engineering leaders attending as our panel of experienced speakers dove into the current and future for DevOps. Our panel was:

  • Tom Casey, SVP Engineering at DocuSign
  • John Ludeman, SVP Engineering at Skytap
  • Adam Johnson, Founder/CEO of IOPipe
  • Moderator, Joe Duffy (Founder/CEO of Pulumi

The make up of the panel was by design — to cover companies at different scale. DocuSign, for example, serves hundreds of millions of users and more than 1.5 million documents per day. Skytap is a mid-stage company that has seen its usage quadruple over the last two years, deploying up to 45,000 VMs and serving up to 2 petabytes of storage a day. IOPipe, in contrast, is in the early days of building its product with a distributed team churning out multiple releases every day! The DevOps goals and plans of each of these companies are different, which led to an interesting discussion under the expert probing of our masterful moderator Joe Duffy.

DevOps = ownership + accountability

While Joe did his best to instigate the speakers in taking opposing positions, he had no luck when it came to how they thought of DevOps. To each, DevOps was about aligning engineering teams with creating customer value and achieving business goals. The key, as each speaker emphasized, was to give developers end-to-end ownership (and the accountability that comes with it). Developers must be able to see the value they are delivering to the customers, or not. And, they must be provided with all the tools and processes, and more importantly, the organization and cultural support needed to succeed.

DevOps ≠ shipping more features

In the fog of war, there is often a tendency to add every feature request to the scrum. Shipping, however, is not a good measure of success. Adoption, utilization, learning, and direct revenue are much better measures of value creation. When it comes to DevOps, reemphasizing value creation and not just features shipped is important. DocuSign, for instance, made driving adoption (of their product) a company wide priority because, direct revenue is typically a trailing indicator of feature value. To keep everyone focused, they evaluated every shipped feature in light of adoption. It mostly worked for them.

DevOps is always a work in progress

No matter how small or big the company is, DevOps is never done. John from Skytap, for example, shared how, after operating for a few years, they realized that their organizational structure was getting in the way of shipping code quickly and efficiently. So, they reorganized and refocused the engineering teams to make sure that they stayed agile as the business scaled rapidly. Tom from DocuSign shared a similar experience, done at a greater scale in a more gradual manner. And, they both fully expect to redo their DevOps process and organization multiple times as their businesses continue to grow quickly.

No “no-ops” unless you also believe in unicorns

In this day and age of serverless, the topic of “no-ops” inevitably came up. To much of Joe’s delight, it elicited some strong reaction from the speakers. Long story short, the verdict was that no-ops does not work at scale. Every SaaS company, once it reaches a certain scale, needs specialized ops to ensure it can deliver the best user experience without blowing up its cost budget. DocuSign has “devs who op,” and every company could do with more of them. Similarly, the topic of SRE did not find a lot of love from the panel. The view was that, for most SaaS applications, it is impossible — or, at least not advisable — to insulate the developers from running the application.

Telemetry trumps testing

The other interesting insight that emerged from the discussion was that, no matter how much one invests in testing, telemetry is indispensable and if anything, more important. Skytap, for example, believes investing more in application telemetry than in running exhaustive regression tests. Similarly, DocuSign puts some of its best devs on telemetry. The emphasis on telemetry helps to speed up release cadence and detect unforeseen bugs.

Looking forward …

While most modern companies have adopted DevOps to a certain degree, most also struggle with several issues. First, balancing agile development with predictability (a must to run a business) is always hard. Hence, every engineering leader clamors for effective planning tools. The other issue is how to measure engineering productivity. Lines of code written or number of bugs fixed could be great vanity metrics, but they do not serve the real purpose. Finally, as we get ready for applications running on multiple clouds, we do not yet fully know the new challenges that will bring to DevOps.

Maybe, that’s where we will pick up at the next MEC meetup!

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Doubling Down on Jama

Today, Madrona is incredibly excited to participate in one of the largest investments ever in an Oregon-based software company, the $200M growth equity investment in Jama Software led by Insight Venture Partners.

Madrona first invested in Jama in 2013 based on our belief that product managers needed better, more modern tools, or even a system of record.  Further, we believed in founder and CEO Eric Winquist, the team, and in the product they had developed since 2008, starting with a better approach for requirements management and extending to purposeful collaboration that helped teams build great products.

The company made a successful transition to a subscription business model and cloud-hosted SaaS.  Eric then recruited Scott Roth as CEO, who added to the great Jama team by recruiting additional experienced and high-performing executives.  Scott has done an amazing job scaling the company.

Today, Jama has grown into a leading product development platform provider for companies building complex products and integrated systems. The Jama Product Development Platform helps companies establish a process to mitigate risk, improve quality, identify opportunities and decrease time to market via an integrated solution for guiding the product lifecycle from idea to launch. More than 600 innovative companies use Jama Software to modernize their product development process.

This significant investment from leading growth equity firm, Insight Venture Partners, is validation of the value Jama provides to customers, its market leading position, as well as its rapid ARR growth.  Even more importantly, this new investment round validates the opportunity that lies ahead.  This is what is most exciting to Madrona.  We see considerably more growth in Jama’s core market, winning new customers and converting others from older systems like IBM DOORS.  The company is just starting to scratch the surface with its business outside of North America, as well as working more closely with key partners.  The launch of Predictive Product Development and Jama Analyze in April were examples of a number of new product and service enhancements in which the company will continue to invest.

Madrona loves to partner with founders from Day One.  In many ways, it’s Day One again at Jama.  We are delighted to continue to partner with Scott Roth and the Jama team, and now Richard Wells and Insight.  We will continue to roll up our sleeves and work hard to help grow Jama into an indelible Pacific Northwest success story.

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Welcoming Micah Baldwin

(Pictured Micah Baldwin, S. Somasegar, Scott Jacobson) 

I am excited to announce that Micah Baldwin has joined us as Executive Director of the founder-focused innovation center we will be opening later this summer. In the spring, we shared that Madrona signed a ten-year lease for the 33rd floor of our building (directly below the Madrona offices) that will be dedicated to supporting tech founders and the startup ecosystem in Seattle. A key ingredient to the success of such an endeavor is a leader with equal parts vision and ability to execute, and we found our leader in Micah. Micah brings more than twenty years of startup experience as a serial founder, mentor and ecosystem supporter. While steeped in all things startup, Micah joins us from Amazon Web Services, where he developed and operated the AWS Connections program, which helps enterprises identify and collaborate with tech startups.

In the innovation center he will be doing that and much more for great Seattle founders and founding teams. Micah has an expansive vision for new and additive ways to create value for founders in our region and help to grow the next generation of world class technology companies in Seattle. We are looking forward to getting started and could not be more enthusiastic about Micah joining us in this endeavor.

We will have a lot more to share in the coming weeks. Welcome Micah!

And get in touch innovate(Replace this parenthesis with the @ sign)madrona.com if you are interested in exploring membership or space in the innovation space!

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Rigado – Edge Computing for IoT Devices

(Pictured Ben Corrado, co-founder and CEO, and Len Jordan)

Today I’m very pleased to announce our investment in Rigado, developers of an ‘edge-as-a-service’ platform for next generation IoT applications.  We have known members of the Rigado team for many years, are impressed with their product/business progress and are glad to be leading their A round of $15 million with participation from existing investors Oregon Venture Fund, FusionX and Vanedge Capital.

Rigado’s platform plays an important role in the hybrid distributed computing world that marries the cloud with processing at the edge.  Their recent release of ‘Cascade’ leverages the team’s strong history in device connectivity with a sophisticated container-based software API system and gateway for security, management, provisioning orchestration and cloud integration.

We have been studying the IoT market for several years and believe it will become more and more important as intelligence at the edge matures.  We are especially impressed with Rigado’s customer traction in new commercial applications like retail/hospitality, building management and more classic IoT use cases around asset tracking and telemetry.

We look forward to working closely with the team, they have strong relationships with important partners like Microsoft and Amazon who are well-known to Madrona.  We are also especially happy to be working with another great company in Oregon and look forward to connecting Rigado to our colleagues up and down the Cascade corridor.

 

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Announcing $300 Million for Technology Entrepreneurs and Founders

Today the Madrona Team is gratified to announce our latest $300 million fund, Madrona Fund VII, for investing in exceptional technology entrepreneurs and founders in the Pacific Northwest from Day One.  Our longstanding endowment, foundation and family office investors see a huge amount of opportunity for growth in our market.  We agree – we think the next big technology trends of cloud computing, intelligent applications powered by AI/ML, multi-sense user interfaces and solutions combining the digital and physical world will drive the next decade of innovation are all happening in greater Seattle better than anywhere else in the world.

We look forward to working with great entrepreneurs, co-investors, and partners as we build the next big companies for the future.  Here are the details: we raised $300 million from which we will make initial investments over the next 3-4 years and use to continue to support those companies over the long run – often for 10+ years. Four of our companies have IPO’d in the last two years (Smartsheet, Redfin, Apptio and Impinj) and they exemplify how we work. We were there at day one through the ups and downs for every one of those companies.  The average time from inception to IPO for those companies was 12 years.  We believe whole heartedly in the innovation of people in the Northwest and we are excited every day to get up and work with you to build success.

Thank you!

Below is our press release on the new fund.

Madrona Venture Group Expands Capital for Entrepreneurs in the Pacific Northwest – Announces a New $300 Million Fund for Early-Stage Technology Companies

Fresh from Four IPOs, Madrona’s Fund VII was Over-Subscribed with Investors Interested in Participating in the Growing Innovation Ecosystem in the Pacific Northwest

Seattle, WA – May 22, 2018 – Madrona Venture Group (www.madrona.com) today announced the closing of a $300 million investment fund, Madrona’s seventh.   Madrona’s strategy is to partner with the most promising technology entrepreneurs and their teams from day one through the long term. Madrona primarily focuses on great founders based in the Pacific Northwest, which is home to two of the world’s four largest technology companies, Microsoft and Amazon, as well as a thriving technology and startup ecosystem.

In the past two years, four of Madrona’s portfolio companies have gone public.  With each of these companies – Smartsheet, Redfin, Apptio and Impinj – Madrona was there at day one and partnered with the team every step of the way.  The average time from initial investment to IPO for these companies was 12 years, exemplifying the firm’s long-term commitment to entrepreneurs.

“The entrepreneurs in our region continue to build exceptional companies on the leading edge of major customer, technology and business model changes.  We believe cloud computing, intelligent applications powered by AI/ML, multi-sense user interfaces and solutions combining the digital and physical world will drive the next decade of innovation,” said Matt McIlwain, managing director, Madrona Venture Group. “On behalf of the entire Madrona team, we are proud to have the trust of our many limited partners and outstanding founders.”

Madrona Venture Group Managing Directors

Fund VII is Madrona’s seventh fund over the last 23 years and brings funds under management to nearly $1.6 billion.  The oversubscribed fund is supported by a diverse set of repeat and long-term investors including the nation’s premier endowments, foundations, family offices, Outsourced Chief Investment Offices (OCIOs) and entrepreneurs.

Madrona’s philosophy of supporting technology entrepreneurs and startups in their earliest days continues with this fund, and the firm will deploy capital to lead and participate in seed and Series A investment rounds.  In addition, the entire Madrona team will continue to roll up their sleeves to help with recruiting great talent, making strategic business decisions, amplifying company stories, connecting them with partners and customers and raising follow-on financings.

Mark Mader, long-time CEO of newly public Smartsheet (NYSE: SMAR) commented, “Madrona understood Smartsheet’s vision and the value of our innovation from our earliest days, even when some others did not. In the eleven years since, our partnership has yielded significant growth, supported by Madrona’s valued counsel on market trends, buyer needs, funding, executive talent, and ability to collaborate with other growth investors. As I reflect on the early decisions that made a positive difference for Smartsheet’s business, our decision to partner with Madrona is one that delivered in the short, medium, and long term.”

Madrona has been committed to supporting, spurring and fostering the innovation ecosystem in the Pacific Northwest over its history, ranging from creating Seattle’s first startup studio, Madrona Venture Labs, five years ago; launching and supporting Seattle TechStars; partnering with the University of Washington Allen School of Computer Science; and working with the angel investor community.  This year, Madrona will open Floor 33, a Seattle innovation community co-located with Madrona that will house an expanded Madrona Venture Labs and a curated co-working space for founders and their teams featuring programming for residents and the entire community.  This 22,000 square foot location will open later this summer.

Current and new portfolio companies will benefit from an expanded group of Managing Directors, investment professionals, Venture Partners and professionals dedicated to helping our companies succeed. Recent additions include: Managing Director, S. Somasegar; Venture Partners, Ted Kummert, Hope Cochran, and Luis Ceze; Strategic Director, Betsy Sutter; investment professionals Maria Karaivanova, Sudip Chakrabarti and Chris Picardo; Talent Director, Shannon Anderson; and Business Development and Investor Relations Director, Alice Ryder.

About Madrona

Madrona is an early stage venture capital firm in the Pacific Northwest.  The firm invests in technology entrepreneurs and companies, and works with them to build their businesses. Madrona manages nearly $1.6 billion and was an early investor in companies such as Amazon.com, Apptio, Smartsheet, Rover.com, and Redfin.

Contact:  Erika Shaffer erika(Replace this parenthesis with the @ sign)madrona.com  206-972-5514

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Insight from the “Day One To IPO” Experience

Technology IPOs have rebounded the past couple of years with an especially strong start to 2018. In the first four months of 2018, there have already been 17 tech IPOs raising over $8 billion which is double the pace of 2017 in deals and capital raised. And, three companies founded in Seattle (Docusign, NLight and Smartsheet) all went public last week.   At Madrona, we have had the privilege to support four portfolio company IPOs the past 2 years; Impinj, Apptio, Redfin, and Smartsheet. In every single case, we were involved at or near Day One and on average it took 12 years from our initial investment to IPO milestone.

When you invest in entrepreneurs and their companies from Day One, you build deep, trust-based relationships. You also learn some key insights that could help the next generation of innovators who are aspiring to build companies change the world. These insights include:

  • Be obsessed with early customer-product fit
  • Maintain “unreasonably high” expectations and standards
  • Constantly look “around corners” to anticipate what needs to change
  • Align for long-term and mutually beneficial strategies
  • Establish and maintain deep, trust-based relationships

Be obsessed with early customer-product fit

Successful companies always begin with a maniacal focus on a core customer and problem. This initial focus is on customers and not “markets.” Markets often don’t exist yet when a team starts a company to solve a problem better than it could ever be solved before. And, the customers themselves take two general forms – the user and the buyer. Sometimes these two roles come in one person, but often in B2B businesses they are separate.

Today end users are increasingly empowered to find, try and adopt innovative new products. This bottoms-up adoption creates momentum for new solutions in both the consumer (Spotify, Redfin) and commercial (MongoDB, Smartsheet) worlds. Often these better solutions to real problems lead to customer adoption and early monetization. And, it is then that new channels in the consumer world or economic buyers in the commercial world emerge. But, it always starts with an end-user with a specific need (either explicit or latent) that can be better addressed with new products. The broader market or category for innovative products usually emerges later.

At Madrona, we find that you want to work with entrepreneurs who have high conviction about what the customer is hiring them to do. But, we also look for people who will hold their convictions “loosely in their hands” and willingly alter and shift their convictions as data and experience point to the need for changes in products, strategies or team members.

Mark Mader, CEO of Smartsheet and Matt McIlwain

The Smartsheet team’s vision for a cloud collaboration platform for teams has been a constant, but it took two versions of the user interface to gain broad customer adoption.  And, over a decade later, they are using machine learning, API integrations and workflows to continually improve how customers leverage Smartsheet.

Maintain unreasonably high expectations and standards

Entrepreneurs have a complex mix of personal attributes that often include substantial confidence and conviction combined with genuine humility and curiosity. Better yet, successful founders have a healthy dose of self-awareness of their strengths and weaknesses.

With these attributes as a foundation, it is possible to set unreasonably high expectations. High standards attract other talented people to be part of a team building truly breakthrough products and go-to-market models. And, high expectations motivate those talented people to do their best as individuals and as a team. This dynamic often creates a virtuous cycle of talent attracting talent, experiments that deliver iterative learnings, and ultimately the creation of market leading products that exceed customer expectations. Jeff Bezos summarized this dynamic well in his most recent Amazon Shareholder Letter.

The biggest risk to setting such aggressive standards and aspirations is when founders/executives don’t have sufficient humility and self-awareness to recognize their limits. These limits may be their personal development areas or the limits of those things they can’t directly control. These can produce internal dysfunction or cultural decay. Combining high standards and high self-awareness is often a path to success.

Constantly look “around corners” to anticipate what needs to change

One critical way to constantly calibrate which standards and expectations are reasonable is to look around corners and anticipate strategies, systems, structures and even functional leaders that need to change. Companies, and their leaders, are often better at introspection and adaptation when they face struggles. But, many of the very best performers are looking ahead, in the face of rapid growth, at how scale drives the need for adaptation.

Several years ago, Apptio founder and CEO Sunny Gupta identified that their strategic platform approach to cost transparency products would not enable them to predictably and

Matt McIlwain and Sunny Gupta

sustainably grow.  He and his team developed a complimentary strategy to “appify” core customer use cases, including IT planning and financial management, and sell them to relatively smaller enterprise customers.  Their enterprise applications strategy has meaningfully contributed to customer and revenue growth in recent years.

I think of the CEO role as really the Chief Alignment Officer. They are constantly looking out ahead toward the macro trends, market dynamics and internal constraints that need to be addressed. Often these forces are not going to show up in current operations in a clear way. CEOs need to find systematic ways, both quantitative and qualitative, to identify what is breaking (or will be breaking soon) and prioritize what must be fixed. Then, it is essential to align their teams, strategies and structures toward overcoming these challenges before it is too late.

Align for long-term and mutually beneficial strategies

Companies that focus on the long term are often internally aligned. And, of equal importance this clarity of objectives and goals helps produce external alignment. The best CEOs are seeking alignment externally with customers, partners, investors and more. They triangulate their own perspective along with internal and external viewpoints to make decisions. And, they look for mutually beneficial ways to win in the market.

While innovation can negatively impact outdated and legacy products and customers, finding alignment around a “growth mindset” can create a bigger pie of economic success. Satya Nadella has emphasized this mindset as CEO of Microsoft. He constantly encourages the company to be more customer and externally focused rather than competitor and internally focused.  From a partnering perspective, this means actively working with game changing startups and balancing platform goals with the temptations to build products to that will compete with partners.

For startups this external alignment is crucial to long term company health and success.  Entrepreneurs like Kabir Shahani of Amperity or Bob Muglia of Snowflake have identified a customer pain point and worked hard to align their product approach to meet this customer pain.  They have also recognized the power of go-to-market partners such as Microsoft and AWS which provide core computing platforms for these global customers. These go-to-market partners can be extremely valuable for a startup, but it creates some inevitable tension between the platform and application provider.  For start-ups, partner alignment becomes one of those key areas to be regularly assessing and looking “around corners” at what is on the horizon.

Establish and maintain deep, trust-based relationships

The mission of taking a Day One idea from improbable to inevitable is a daunting one. It is filled with mountaintop moments and times of doubt and discouragement. The reward, far beyond the financial benefits, is truly in the experiences and the people you get to travel the journey with together.

These relationships are built on respect, candor and integrity. They are best strengthened by how you handle the more challenging moments in a company’s life. When you miss a quarter. When you lose a key employee or customer. When you uncover unethical or self-centered behavior. When an external partner lets you down. When you must decide whether to sell or not to sell. There are many of these moments along the journey. And, nobody’s judgement or demeanor will be perfect. But, trying your best to do the right thing in the right way will strengthen the bonds of trust and respect with others. It is simply amazing how often those people who impress you most in challenging times become lifelong friends and professional colleagues.

Every journey from Day One to long run success is indeed a winding road. Customer obsession, high standards, looking around corners, long-term alignment and mutual trust are a powerful combination of attributes that I have found increase the potential for success along that path. Success has many dimensions including product success, customer success, team success and most importantly success in life. While an IPO is just a milestone along a bigger journey, it is a monumental one. It signals a coming of age for a team and a company that is ready to embrace new opportunities and expand their horizons. And, if a company is ready, current market dynamics are highly favorable for companies to access capital and leverage the benefits of being public.  We look forward to helping to build more teams and companies that get to experience these great moments – and we hope you are on one of those teams!

Interested?  talent(Replace this parenthesis with the @ sign)madrona.com

 

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