Madrona expands geographic reach and targets later-stage deals with $100M ‘acceleration fund’

Madrona expands geographic reach and targets later-stage deals with $100M ‘acceleration fund’

2:36pm, 1st May, 2019
Madrona managing directors, from left to right: Tom Alberg, S. “Soma” Somasegar, Scott Jacobson, Matt McIlwain, Tim Porter, Hope Cochran, and Len Jordan. (Paul Goodrich is Madrona’s other managing director) (Madrona Photo) Call it the “ones we missed” fund. has raised $100 million for what it calls an “acceleration fund.” The Seattle firm, which has focused on early-stage deals across the Pacific Northwest throughout its 24-year history, will target later-stage companies based across the country with the new investing vehicle. But it is also targeting deals in its Seattle backyard that slipped through the cracks. Madrona is one of Seattle’s most successful early-stage startup investors — with recent successes such as Apptio, Smartsheet and Redfin under its belt. But even so, Madrona’s Matt McIlwain admits that the firm missed some opportunities, pointing to fast-growing Seattle startups such as Outreach, Auth0, Icertis, and Textio. “It’s fair to say that there are some great Seattle companies that we didn’t get right early on,” McIlwain said. The new fund frees up Madrona to participate in later rounds for more mature companies both in and out of the Pacific Northwest. Madrona began thinking about this new strategy last fall, just after it $300 million for its seventh fund. The venture capital firm had dabbled with later-stage deals, investing in more established companies based outside of Seattle such as , Tigera, and over the past few years. Matt McIlwain. (Madrona Photo) “We’ve done some of those, but very selectively,” McIlwain told GeekWire. “We wanted to have a dedicated fund and a dedicated focus on that acceleration stage.” He described that stage as when a company has already found product market fit and is “really starting to accelerate the growth of the business.” Best known as an early-stage investor — including an insightful gamble on Amazon in the 1990s by partner Tom Alberg — the acceleration fund represents a new strategy for the firm. But it is one that other firms have experimented with, though the approach of investing across stages of company formation has not always worked in the topsy turvy world of venture capital. (Madrona Image) Madrona will be “super selective” with the acceleration fund, with plans to make six-to-nine investments over a three-year span, McIlwain said. The average check size will range from $7 to $10 million. If all goes to plan, Madrona could raise another acceleration fund when it starts planning for its eighth traditional “core fund.” Madrona’s existing investors provided the capital for the acceleration fund. The firm remains committed to making early-stage investments in Pacific Northwest startups via its traditional fund. Madrona prides itself on planting seeds in companies from “Day 1” and sticking with them throughout a journey to acquisition or an IPO — Smartsheet, Impinj, and Redfin are examples of those investments. “We love our core strategy,” McIlwain said. “Nothing is changing there.” In fact, cash from the acceleration fund could very well go toward additional Seattle companies. “We are more committed to this region than ever,” McIlwain said. He noted Madrona’s partnerships with organizations including Techstars Seattle and the University of Washington, and said the firm’s new founder center, , has been “incredibly successful.” Madrona employs 30 people at the firm and has been bulking up its lineup, adding and over the past year. The same team will be working with both funds — this could help Madrona avoid issues that plagued Kleiner Perkins Caufield & Byers, which dealt with internal rifts after establishing a “growth” fund in 2010 to compliment its early-stage fund. “Our approach is very different,” McIlwain said when asked about last month’s Kleiner Perkins story in . “A unified team, unified process and consistent fund economics across the firm along with our collaborative approach will allow us to bring the full Madrona team’s value-add to all our companies across all our funds.” A staircase connects Madrona Venture Group’s existing office to Create33, a new founder center that aims to be an epicenter for Seattle startups. (GeekWire Photo / Taylor Soper) Madrona is facing increased competition from Silicon Valley firms that are . Recent investors in later stage rounds for companies such as Outreach and Auth0 include Mayfield, Spark Capital, Trinity Ventures, and Meritech Capital. McIlwain said he welcomes the new entrants in the Seattle market. “It is great for the Seattle ecosystem to have more investors partnering with great entrepreneurs and investors like Madrona to build global-leading companies,” he said. Madrona has proven its ability to back nascent startups that become huge companies. Its track record for investing in later-stage companies for the first time, especially those outside of its backyard, is not as clear. The firm hopes to use its hometown as an advantage. “And, we believe, it is essential to have the ‘Seattle Perspective’ as part of your team to accelerate growth and maximize long-term value,” it wrote in a blog post today. McIlwain said that perspective includes proximity to homegrown companies such as Amazon and Microsoft, and the cutting-edge technologies being developed across the city in industries such as cloud computing, machine learning, and artificial intelligence. Madrona believes it can make a difference for companies not familiar with the Seattle tech scene. “It’s the access to the insights from those domains; access to the innovators both in small and big companies we’ve had the opportunity to work with; and this whole area of a cultural approach that really values taking a trust-based, long-term style to company building,” McIlwain said. In addition to Create 33, other Madrona-related initiatives include , the “startup studio” backed by Madrona. Recent investments made by the firm include deals backing Igneous, Ovation, Knock, Polly, Pro.com, and Clusterone.
Possible Finance lands $30M credit facility, expands small dollar loan service to Texas

Possible Finance lands $30M credit facility, expands small dollar loan service to Texas

9:48am, 2nd April, 2019
The co-founders of Possible Finance, from left to right: Prasad Mahendra, vice president of engineering; Tyler Conant, chief technology officer; and Tony Huang, CEO. has access to another chunk of cash to supercharge growth of its mobile-only loan program. The Seattle startup just landed a $30 million credit facility from Park Cities Asset Management, an alternative credit manager based in Dallas, Texas. This follows a $4.3 million investment round the company in February from various angels and venture capital firms. Possible Finance CEO said he was drawn to Park Cities because of its “unique understanding of the Texas consumer lending market and it’s regulatory challenges.” The startup today launched in Texas, its fifth U.S. state. Possible Finance offers loans of up to $500 and is similar to payday lenders, but with some differences. Borrowers have more time to pay back the money in installments and the repayments are reported to the credit agencies, helping people rebuild their credit. Traditional payday loans are structured differently, so those payments don’t count for credit scores, which can trap consumers in a costly cycle of borrowing. Using the Possible Finance app, people can apply for loans without a credit check and receive funds the next day. Possible Finance links to a customer’s bank account and uses machine learning to analyst financial transaction data to make credit risk decisions rather than relying on FICO credit scores. (Possible Finance screenshot) Since in April 2018, the company has originated 24,000 loans, up from 13,000 two months ago, and has more than 100,000 users on its waitlist. It has been growing revenue by 50 percent month-over-month and recently crossed a $1 million annual revenue run rate milestone. Huang said in February that he sees a “clear path” to profitability. In addition to Texas, Possible Finance also serves customers in Washington, California, Utah, and Idaho. It will launch in Ohio later this month. The company has ten employees. “We’re really proud of the fact that 40 percent of new customers every month come from organic, non-paid channels,” Huang said in an email. “By making a small dollar loan into a credit building opportunity, we’re helping everyday Americans improve their credit scores and achieve long-term financial wellness.” Huang and his co-founders — , vice president of engineering, and , chief technology officer — previously worked together at , the leading manufacturer of non-lethal Taser stun guns and policing software and supplies including in-car and policy body cameras. That experience instilled in them a passion for developing technology that serves a social good. As part of his role as product manager at Axon, Huang did ride-alongs with police across the country, giving him some insight into disadvantaged neighborhoods and reinforcing his commitment to helping underserved communities. Huang was nominated last year for the Young Entrepreneur of the Year category at the .