How Madrona Supports Founders From Day One for the Long Run

Watch the full conversations on our YouTube channel: Sunny Gupta | Aaron Easterly

When founders are early in their entrepreneurial journey, they often face tough choices about who to raise capital from and what to expect from those investors. If you are fortunate to have compelling founder-market fit, you will likely have several investor options. Investors will try to convince you they are your best long-term partner. Often, this is the first time a founder has started a company and raised capital. It can be hard to distinguish between investor persuasiveness and a genuine ability and commitment to being in your corner from day one for the long run. At Madrona, we believe the best founders need and want great partners for the long, unpredictable, and challenging path to successful company building.

Every year, Madrona’s investors, called Limited Partners, attend our annual meeting. We discuss company and fund progress over the past year and forecast what we expect will happen in the future. This year, we focused on the long-term commitments that we believe venture investing requires to build trust-based relationships and lasting companies.

When investing in founders, we invest in people, their vision/ideas, and the company they formed to deliver a better solution to a customer problem. The founders are also making an investment in our partnership. They trust us to help shape the strategy, open doors to customers, employees, and business partners, and attract the future capital needed to maximize value. “Day One for the Long Run” is a phrase we have used for years to describe our way of working with founders from the earliest days of the journey. No matter our entry point, our long-term commitment is the same: We roll up our sleeves from Day One to help entrepreneurs in an authentic way create a valuable business.

At our annual meeting in Seattle in March, we hosted three fireside chats with founders and CEOs we worked with from the earliest days for more than a decade. Smartsheet CEO Mark Mader, Rover CEO Aaron Easterly, and former Apptio CEO Sunny Gupta talked about their journeys of company building and the lessons learned.

Mark Mader at Madrona's 2024 Annual Meeting to help showcase Madrona's commitment to long-term venture investing.

These founders and their companies had moments of despair and uncertainty, but they chose to invest in personal growth and build teams that could overcome the inevitable challenges. Their stories are truly incredible, and we are thrilled to have been there from the beginning to participate in the evolution and support along the way.

From these conversations, there were three consistent themes: A company’s mission should guide its decisions; startup journeys are rollercoasters; and always look around the corner to ensure you are headed to the right destination.

Your Mission Guides Decisions – Big and Small

Building a company is full of twists and turns and endless possibilities to expand or add to product lines or business units. But how do you know which opportunities to pursue and which to let pass by?

Aaron Easterly talked about how Rover uses its mission to make it easier for people to experience the love of a pet to guide their decisions. With their global audience, they could expand in many directions, but with every opportunity or idea they come back to — “Is this an impediment to pet ownership? Would someone not get a pet if this thing didn’t exist?” This focus helped keep their North Star clear.

Similarly, Apptio’s mission to help CIOs show the value they created for their companies (vs. being perceived as a cost center) led directly to building the Technology Business Management category. Apptio knew CIOs would embrace this new approach to transparency and communication. Seeing the opportunity to work closely with their customer group to build this mission broadly, Apptio created the Technology Business Management Council, which attracted CIOs from global brands and Fortune 500 companies to shape industry standards, share best practices, and learn about emerging technologies. This category creation and relationships with the world’s most powerful CIOs led Apptio to a successful IPO and, ultimately, an acquisition by IBM. (Watch the full conversation with Sunny Gupta here.)

Startup Life is a Rollercoaster

Every company that makes it in the long run has some kind of near-death experience. When this happens, you need trusted partners to help you consider the options and make the best decisions possible.

Smartsheet’s near-death experience came in 2008 — amid the financial crisis. It was clear that Smartsheet’s product needed both a front and back-end overhaul. The founders believed strongly in their mission but had to rethink their approach. The big problem was the company was running out of cash, and a rebuild would take significantly more than a couple of months. Madrona also believed in the mission and the people at Smartsheet and chose to reinvest to support the product rebuild. By early 2011, Smartsheet was on a path to success. The company went public in 2018.

“I’m really appreciative and grateful to Madrona for being patient with us. There were a lot of uncomfortable meetings where we weren’t delivering for you, and you stuck with us, as did the LPs indirectly. It really changed a lot of our lives and the lives of our customers.”

— Mark Mader

Rover’s near-death experience was one that impacted many companies — the global pandemic in 2020. A company that had built its business on people going on vacation or going to work while their pets were at home was suddenly in a negative revenue situation. A circumstance that no investor or company leader could have ever anticipated. The team had to make tough expense management decisions and do so quickly. But, Aaron Easterly and his leadership team could also anticipate and prepare for the future. As the world navigated through the worst of the pandemic, they believed there would be a lot more pet parents out there who, having adopted pets in the pandemic, would need help with their new family members. While Aaron isn’t convinced his employees at the time believed him, it quickly became apparent that was the case, and the tailwinds of business from the boom in pet parents came. Rover was purchased by Blackstone for $2.3 billion earlier this year.

Aaron Easterly at Madrona's 2024 Annual Meeting to help showcase Madrona's commitment to long-term venture investing.

“It has been a privilege to have people as long-term oriented as our investor base. When we agreed to sell, something like 30% of our cap table belonged to people who had been in the company ten years or more. That’s not a privilege a lot of people have.” — Aaron Easterly

Look Around the Corner to get to the Best Destination

Focusing on the future – and making well-considered decisions with a long-term view was a consistent theme across all three conversations.

Apptio, uniquely positioned for having gone public and subsequently been acquired twice at increasing company valuations, received numerous offers for purchase throughout the years. Building a category is not easy and not fast. One of these offers came on the eve of going public in 2016 and was significantly above its IPO price. However, the company, with the support of Madrona, believed that there was greater value to unlock as a public company. While life as a public company wasn’t always easy, greater value creation proved to be the case with the purchase by Vista at nearly $2 billion in 2019 and the subsequent sale to IBM in 2023 for $4.6 billion.

Sunny Gupta at Madrona's 2024 Annual Meeting to help showcase Madrona's commitment to long-term venture investing.

“A lot of the lessons I’ve learned have come from my partnership with Matt and the rest of the Madrona team. From day one, I felt that long-term commitment to me as a founder. From an entrepreneur’s perspective, I cannot underscore the importance of that enough. Every day, you’re going to feel lonely. But a committed partner is kind of like having your parent’s unconditional love. And I have genuinely felt that with Madrona.” — Sunny Gupta

Smartsheet remains a public company today, and their performance is judged every trading day and quarter. They have adapted by embracing scalable accountability while maintaining a long-term commitment to their customers and employees. This led them to adopt new technologies such as cloud-native architectures and GenAI that deliver enterprise-grade work collaboration to customers of all sizes. They have also grown their footprint through thoughtful acquisitions and productively evolved by being open to changes and contributions from new team members. Founders should focus on building a solid foundational culture that can adapt and grow as a company scales.

Ask A Founder What They Experienced

When first-time founders ask us to describe our approach to partnering for the long term, we are honored to be able to share stories like the ones above. We also have stories of amazing companies with talented founders whose outcomes weren’t so positive. The lessons from those experiences and how we worked to help those companies have the best outcome possible are equally important. That is why we always encourage entrepreneurs to talk to founders we have worked with in the past and ask them about their relationship with Madrona. Often, the best indicator of what will happen in the future is knowing the authentic experiences of working with a team in the past. We are thankful for the partnerships with outstanding entrepreneurs and long-term investors who help Madrona make durable commitments to companies for the full journey.

Celebrating the Rover Journey

At Madrona, our investment strategy is “day one for the long run.” What we love most is partnering with entrepreneurs from the very beginning through every step in their journey. We cannot think of a better illustration than our journey with Aaron Easterly and the Rover team.

The seed of the idea for Rover was Greg Gottesman’s when he was a managing director at Madrona and a board member of the local nonprofit Startup Weekend. Greg was brainstorming company ideas to pitch at an upcoming event and conceived of “A Place for Rover” (an Airbnb for pets) to address a pain point he experienced as a new dog owner.

Greg pitched A Place for Rover at the next Startup Weekend event. The pitch won best startup idea, and Greg convinced team member Phil Kimmey to drop out of school to work full-time on building the initial product.

Aaron Easterly RoverThus, Rover was born inside the walls of Madrona. Soon to join as co-founder and CEO was Aaron Easterly, an expert marketplace builder and pet parent who was an executive in residence at Madrona at the time. When Aaron heard about the Rover incubation project, he fell in love, joined the team, and they were off to the races.

The story of Rover, like other incredible technology companies, was not all up and to the right. Building and scaling digital marketplaces that deliver great customer experiences is hard — even harder when making them great and profitable businesses. The Rover team achieved both. It’s said that every great tech startup has a near-death experience on the way to success, and Rover was no exception. Most notably, Rover’s business was (temporarily) decimated by the Covid-19 pandemic when no one was leaving their homes for work or travel — the two primary reasons pet parents turn to Rover.

Rover adeptly navigated through challenging decisions during the pandemic, enabling the company to thrive on the other side. The tailwinds from a Covid-driven acceleration in pet adoption propelled Rover’s business and created a clear path to profitability, making the company a great candidate for the public markets. And Rover really hit its stride as a public company, a leg of the journey too few companies have the opportunity to experience.

Rover is also a great example of our approach to investing at Madrona. Principal David Rosenthal partnered with Greg during the incubation and early growth of the company. Managing Director Scott Jacobson, a former marketplace builder and operator, worked closely with Greg and David informally in the early years and in a board role beginning in 2017. When we say we’re there for the long run, that includes life as a public company. Scott has served as a director on Rover’s board since de-SPAC, including as the sole investor director on the transaction committee that helped the company ultimately enter its next phase with Blackstone.

It is with immense pride in the Rover team and all that they have accomplished, as well as a healthy dose of melancholy, that we celebrate the closing of Blackstone’s acquisition of the company as Madrona’s journey with Rover comes to an end. With Rover’s mission to make it possible for everyone to experience the unconditional love of a pet, it is in many ways still early in the journey for the company. And we look forward to seeing the incredible things you do for pet parents the world over in the years to come.

The Power of Why – Madrona 2022

Madrona’s mission is to help positively transform the world by partnering with incredible entrepreneurs to build lasting and significant companies. Every March at our Annual Meeting, we provide a progress report to our investors – primarily university endowments, foundations, and families who are aligned with our mission. This week, for the first time since 2019, we gathered over 100 people in Seattle to reflect on and look ahead to the opportunities created by entrepreneurs who take risks, endure setbacks, and think long term.

We discussed the importance of having prepared minds around investment areas where we believe technological and societal change are creating opportunities for innovation. We highlighted several founders and their companies where we have been part of the journey from Day One for the Long Run. And we described what we call the Founder-Market Fit Triangle, which focuses on the importance of curiosity and continuous learning through the power of asking “Why?” Before explaining what we mean by The Power of Why, here are highlights from our annual meeting.

People frequently ask us what we look for in the very early-stage founding teams that we back. In short, there are four core elements to Founder-Market Fit, and each element is grounded in a “why” question. We call it the Power of Why.

  • Last year was a record year for the venture capital industry and Madrona. Approximately $330 billion was invested nationwide in venture-backed companies, which almost doubled the previous record.
  • The aggregate value of Madrona’s funds increased by $1.7 billion in 2021 and has had a compound annual growth rate of almost 40% over the past four years.
  • Madrona invested a record $375 million in 21 new companies and 35 existing companies last year. Our investments ranged from less than $1 million in pre-seed rounds to over $15 million in Series A and later rounds. Public and private market conditions were highly favorable to companies last year, and we proactively guided CEOs to raise capital in 2021.
  • Those investments catalyzed nearly $13 additional dollars for every $1 Madrona dollar such that our companies raised close to $5 billion in total capital – creating opportunities for job creation and company growth.
  • Nine Madrona companies went public between 2016 and 2021 (including three in 2021), providing capital for corporate scaling and a path to liquidity for our investors.
  • Eight Madrona portfolio companies increased valuations to over $1 billion, bringing our total “Unicorn” count to 15 over the past six years and setting the stage for future IPOs.
  • We advanced our core Intelligent Applications theme and launched the inaugural Intelligent Applications 40 lists highlighting the 40 promising private companies leveraging ML/AI.
  • We stayed true to our strategy – incubating companies at Madrona Venture Labs, investing over 80% of seed and Series A funds in PNW companies and ramping our Acceleration Stage (new Madrona investments at Series B/C stage) investments through our Acceleration Funds.

The Power of Why

People frequently ask us what we look for in the very early-stage founding teams that we back. In short, there are four core elements to Founder-Market Fit, and each element is grounded in a “why” question. We call it the Power of Why

We’ve had the opportunity to help founders embrace the Power of Why for many years. I think back to one of my first investments over twenty years ago in Isilon Systems and the problem Sujal Patel and Paul Mikesell were solving for media companies wrangling large files and volumes of files that needed to “scale out” rather than “scale up.” Or Turi, which was founded a decade ago by Carlos Guestrin, Yucheng Low and others affiliated with the Allen School of Computer Science & Engineering at the University of Washington. Turi was one of the first horizontal AI and ML platforms, and it went on to power hundreds of intelligent applications inside Apple devices. And more recently, Anoop Gupta and the SeekOut team saw the opportunity to leverage data and ML to create a better way to recruit and retain employees. One of the most important attributes for founders is to be endlessly curious and open to new information and insights. In that curiosity, there are four “whys” every founder must ask themself when it comes to assessing their Founder – Market Fit for a potentially compelling company journey.

Founder-Market Fit

Why? A founding team must deeply care about why a problem exists and why it hasn’t been solved better before. Why is something broken? Why does so much friction exist in solving that problem? Why have prior solutions become outdated or inadequate? The problem can be getting your machine learning models efficiently deployed in production or rapidly and accurately distinguishing cancer cells from healthy cells. There are many important problems in the world, but it is a founding team’s deep desire to understand why that problem exists for potential customers and why it isn’t being solved better today that lays the groundwork for being the best solution builders.

Why Now? My college soccer coach loved asking us to “do the same thing only different” in practice, which is a metaphor for getting the timing right. In company building, that timing is often based on changing technological and societal forces we can understand but not directly control. Why did “grid computing” largely fail in the late ‘90s, but cloud computing successfully emerged a decade later? Perhaps the combination of standardized hardware, scalable virtualization software and developers who were frustrated with the time and hassle of accessing infrastructure all played a role. Or, why did Friendster and fall short of their potential when Facebook and LinkedIn soared? Founding teams need to have a firm grasp on why now – despite all the skeptics – is the time to launch a new and compelling solution.

We love backing founding teams who turn the improbable into the inevitable. These teams are at the center of the Founder-Market Fit Triangle. And the core question they need to ask is: Why Us? Why are they the team that can be the foundation for building a company and products that might solve a real problem and positively change the world?

Why This? Why can a new solution work to solve a specific problem better today where a solution may not have worked or worked as well before? And, that new solution can’t just be better. It must be “better enough” or 10X better to get the customer to overcome their anxiety, inertia, and risk-aversion for trying new things. While new products are never perfect, they must be able to solve a specific problem in such a compelling way that the early adopters rave about it and tell their friends – creating market momentum and eventually an ecosystem flywheel. In the beginning, founders often are “directionally correct” on the solution they have in mind, but they need to keep an open mind and triangulate the customer and market data they receive to move from founder-market fit to product-market fit. And that requires the self-awareness to recognize the skills and team members they will need to build, sell, and support their product or solution.

Why Us? We love backing founding teams who turn the improbable into the inevitable. These teams are at the center of the Founder-Market Fit Triangle. And the core question they need to ask is: Why Us? Why are they the team that can be the foundation for building a company and products that might solve a real problem and positively change the world? What is their set of experiences, passions and skill sets that drive them to succeed? What are their unique insights or “secret understanding” of the customer’s problem and the potential solution that can now be built and adopted? And why do they believe their team and culture will scale to be a market leader in the emerging market? The founders are the ones that stitch the outer edges of the triangle together to attract employees, capital, partners, and customers – they are the ones who build world-class companies that end up being the big winners.

Founder-Market Fit does not mean you must have years of experience in the market. It doesn’t mean knowing the path you are on with certainty – ask any founder who started with an idea and is now in the market, and they’ll tell you that you learn along the way. But it does mean asking these “Why” questions and then asking them again and again. Coming back to these “Why” questions supports founders, employees, and companies on trajectories that solve problems and build value for customers, employees, and shareholders.

Madrona and the Power of Why

We also reflect on these questions internally at Madrona as we hope to be the company-building partners with the most compelling founders working on the most important problems. We approach early-stage investing with prepared minds, so we can identify and understand themes and invest behind amazing founders who have aligned perspectives on how the world is changing. But that also begins with asking ourselves, “Why?” Why is this team and solution going to win? Why is this industry sector going to fuel the next big shift, and how? Why is the timing right to create a solution that is so much better that customers will just have to buy it? And, most importantly, why are we the right partners for a specific set of founders to leverage their fit with the opportunity? We must feel confident in all these answers as we evaluate new investments often at the earliest stages. When we are confident, though, and make that early-stage investment, we commit fully, investing in those amazing teams and their companies from Day One for the Long Run.

We partner with founders and their teams on what is often a decade-long journey. These partnerships are anchored in shared trust, strong alignment, and a commitment to rolling up our sleeves and investing time and capital to build great, lasting companies. We are there in the early seed days. We are there to help dial in and find product-market fit. We are advisers as they scale once they’ve accelerated growth and success, and we ultimately help guide them through an M&A process or public offering. It’s been our honor to work with Madrona portfolio companies and founders in 2021 and the 27 years across our history, and we are eager to find and back founders just as passionate about the Power of Why as we are.