Tag: Day One Companies

Announcing OthersideAI – Making Email Magical Through AI

Natural Language Processing is having a major moment. NLP enables machines to analyze, understand and manipulate language. It is undergoing a rapid and transformational shift, powered by forms of deep learning.

Led largely by a new generation of pre-trained transformer models, innovators are unlocking NLP use-cases and entirely new applications seemingly at the speed of light. For some context – in February 2020, Microsoft announced what was then the largest and most powerful language model: Turing-NLG. Turing is 17 billion parameter language model that outperformed the state of the art in on a variety of language modeling benchmarks. A matter of months later, OpenAI released GPT-3 – a 175 billion parameter generative transformer model: a 10x increase in size.

These models join a growing number in the “billion parameter club”- to sit among the likes of 9.4B from Facebook and Google’s Meena chatbot. But make no mistake – this is not only a big tech game. New companies like HuggingFace and open-source options like DistillBERT are driving drastic performance improvement in transformer models and redefining the standards by which we evaluate them. The progress is nothing short of astonishing.

OpenAI’s GPT-3 lit the entrepreneurial Twitterverse on fire this summer – and with good reason. The third iteration of OpenAI’s autoregressive language model is a step change in deep learning generative language models. In a matter of days, beta users were demonstrating GPT-3 enabled re-imaginations of tasks like text summarization, code generation, and auto-translation and completion, just to name a few.

At Madrona, we see next-gen NLP generally and these transformer models specifically as enablers to building new companies and applications. Over the past months, we have closely followed the infrastructure developments and potential applications, searching for the right combination of team and use case to support. It came in the form of three young and ambitious founders who, just this summer, formed their company, OthersideAI.

OthersideAI is a next-gen productivity tool that increases the speed of communication. In the few short months since incorporating, the team has leveraged GPT-3 to build a product that takes short-form user input and generates full length emails in the user’s style of writing. It is delightfully simple, contextually aware, and ever-learning.

Since meeting the founders Matt Shumer, Jason Kuperberg and Miles Feldstein in August, we have been continually impressed with the speed of progress and future vision from this team. Just as their tool re-imagines communication, the company re-imagines processes. With OthersideAI, development cycles are measured in days, new features are shipped in hours, inboxes are cleared in minutes, and emails are written in seconds.

OthersideAI has been in alpha mode, working closely with the OpenAI team to refine and customize filters on top of the existing base GPT-3 models. Currently, the product is a Chrome extension that integrates with Gmail. With this announcement, Otherside is officially launching their beta and will start to onboard the first cohort of users from the growing waitlist.

Productivity tools like OthersideAI are a key element of our Future of Work investment theme, augmenting a digital-first workflow with automation. Using OthersideAI promises to drastically reduce the hours spent writing email every day. With the push of a button, it opens access to powerful automation driven by the latest in artificial intelligence and natural language processing. And – alpha testers say it is working – enabling them to get through their inboxes 4x faster already.

We are thrilled to start this journey from Day One with the OthersideAI team and lead their seed round. Join the waitlist here!

Welcome WhyLabs – the AI Observability Platform for massive scale data monitoring and collaborative AI operations

At Madrona, we love partnering with founders from their very early days of idea formation and for the long run. Now that WhyLabs emerged from stealth, we are thrilled to announce that we led the $4 million Series Seed investment in WhyLabs, the AI observability platform for massive scale data monitoring and collaborative AI operations. We joined forces with AI2, Bezos Expeditions, Defy Partners and Ascend.vc.

Thanks to an intro from Jacob Colker at the Allen Institute for Artificial Intelligence (AI2), Maria first met the WhyLabs CEO, Alessya Visnjic, a long-time Amazon software engineer and technical leader, when she was in the early phase of exploring the idea. She kept coming back to a pain point that she experienced at Amazon as a pager-carrying engineer on what later became the core ML team. She was on-call to respond to model failures and data quality issues in internal ML deployments. It quickly became apparent to her that AI needed its own specialized tooling ecosystem. Knowing that the kinds of tools that software engineers rely on to monitor traditional software at scale are not suitable for AI applications, she set out to build WhyLabs.

Alessya’s conviction matched perfectly with our investment thesis around both AI/ML Infrastructure and Intelligent Applications. Through our investments in companies like Algorithmia, OctoML, Snowflake, Turi, XNOR.ai, and Lattice Data, we had come to the same conclusion: while Intelligent Applications are on the rise, the tools that AI builders rely on are at best immature, causing data scientists and engineering teams to spend precious time and effort on non-value added work such as data sampling, error detection, and debugging.

With enterprises of all sizes adopting AI rapidly, global spending on AI is expected to double to $110 billion in four years, according to IDC. The demands on AI practitioners to deliver transparent and non-biased AI systems are ever higher. WhyLabs is a company built on first principles and their solution starts with the data as the single source of truth. The WhyLabs Platform sends AI builders actionable alerts, enabling them to respond to data quality issues and model meltdowns in real-time. We’ve been impressed with how scalable, intuitive, and elegant the platform is – it integrates with existing tools and workflows to support any data type at any scale. While we expect that cloud platforms and many ML platforms for model building and deployment will offer their own model monitoring, we think customers will also need a truly platform-agnostic AI monitoring solution that provides consistent, best-of-breed insights and observability into model performance regardless of where it is running. This follows the pattern demonstrated by traditional APM and monitoring leaders like DataDog and New Relic.

Consistent with Madrona’s strategy of investing in and supporting founders from “Day One for the Long Run,” Maria in particular has worked with Alessya and the team since before they even incorporated. She helped them hone their idea, validate it with customer prospects, develop go-to-market plans and overall strategy, and recruit co-investors. Maria led the investment round for Madrona and served as the Madrona board director. Along the way, Maria, Alessya and the WhyLabs team continued to work together so closely and cohesively that they decided to join forces with her coming on board as co-founder and COO.

Madrona was thrilled with this serendipitous, massive win-win for all parties. Maria brings incredible start-up and GTM experience to this deeply technical team. She joined Cloudflare pre-revenue as an early executive and head of business development helping it grow into the cloud security juggernaut it is today. Her experience scaling GTM dovetails and compliments Alessya, Andy, and Sam’s deep product and technical expertise, making us at Madrona even more excited about the trajectory for this company.

And this is the fourth collaboration Madrona has had with AI2 to fund and spin-out new companies (along with KITT.ai, XNOR.ai, and Lexion), and we are excited to continue to work with them to create new intelligent applications leveraging cutting edge AI to solve important customer problems.

You can experience the WhyLabs Platform or schedule a live demo on their website at www.whylabs.ai or join their community of AI builders on Slack.

Embracing the Intersections of Innovation: Our Investment in Nautilus Biotechnology

(Sujal Patel and Parag Mallick, co-founders of Nautilus)

The code of life, biology and chemistry, have been constantly evolving for millions of years. The code of computing has functioned for less than 100 years. Today, those domains are coming together to transform the ways we understand and improve life and health. The biological and chemical sciences are intersecting with the computer and data sciences in precision medicine, digital pathology, proteomics and more. At Madrona, we believe these intersections of innovation will be at the forefront of major breakthroughs in research, analysis, diagnostics, clinical processes, preventions and cures. While our 25-year history has primarily been focused on transformations in information technology sectors including cloud computing, applied ML/AL, Software as a Service and Internet/e-commerce, we have more recently embraced opportunities where biotech meets infotech.

A company that embodies this emerging theme is Nautilus Biotechnology. Madrona has helped shape the company for almost four years, working together with founders Sujal Patel and Parag Mallick from day one. We provided office space and support for the company in the early days. We co-invested in the Series A with Andreessen Horowitz’s Bio-fund a few years back. And, today, Nautilus announced their $76 million Series B round with new investors including Vulcan Capital, Perceptive Advisors, Bezos Expeditions and Defy.vc.

What has drawn us to this investment theme in general and to Nautilus in particular? It is a combination of the expansive opportunities for scientific discovery, the scale, speed and agility enabled by modern compute and automation, and the continuous improvement in patient and disease understanding enabled by machine and deep learning. But, more importantly, it is a combination of founders in Sujal Patel who we have worked with for almost 20 years – first as the founder and CEO of Isilon Systems (and Madrona Strategic Director), and Parag Mallick who is a Stanford Professor with a focus on proteomics and systems biology with a background in biochemistry and computer science.

Nautilus’s Approach to Innovative Thinking

Biological sciences have been transformed over the past twenty years first by sequencing the full human genome and then by the “commoditization” of genomic sequencing (Illumina, 10X Genomics). Yet, a human’s approximately 3.2 billion nucleotides and 25,000 genes are just the beginning. The DNA functions as a set of instructions, a static view of what might happen, that needs to be transcribed and translated into the tens of thousands of proteins that drive all life — selective expression of proteins drive cell differentiation, metabolic reactions, stimulus response and, importantly, disease. Those proteins act dynamically to determine how our body functions (and malfunctions) which creates substantial measurement challenges.

From the beginning of Nautilus, Parag and Sujal set out to think differently. The core challenge they were trying to tackle: how do we make the proteome as accessible and impactful as possible by overcoming the limitations (coverage, throughput, ease-of-use) of existing protein analyses approaches. By reimagining proteomics as the foundation for improving the health of millions of people, Nautilus strives to enable new horizons in basic science research while transforming drug discovery and personalized/precision medicine.

Nautilus approaches the challenge of mapping the proteome differently at every stage of their automated and re-imagined process. That starts with the biochemical steps for how samples are prepared on the front end and continues through to the cloud computing, data science and machine learning techniques used continuously on massive datasets throughout the process. They leverage a robust understanding of biochemistry and the abundant technological resources that are only now available in scalable ways through cloud computing. There is so much more for the Nautilus team to share, but we defer to them on how and when to tell their story more fully!

Madrona’s Three Key Intersections of Innovation Concepts

Madrona’s investment in Nautilus and their approach to re-imagining the ability to leverage proteomics is just one area where biological sciences are intersecting with computer and data sciences. In the past several years we have increasingly seen the growing interdependence of these disciplines and the ability they have to change lives.

There are many more categories where the intersections of innovation apply. Digital pathology is developing models for image-based tumor detection, cancer research is applying machine learning to identify genetic or immune system biomarkers, and CRISPR screening techniques are helping to rapidly understand the mechanisms of action underpinning disease. Three key concepts span these intersection areas – discovery, automation and continuous learning.

  1. Discovery: The more we know about human (and non-human) biology, the more we realize there is so much more to learn. The pursuit of basic science research and the curiosity to explore new areas of discovery are central to the breakthroughs that lie ahead. Take the relatively new learnings about how bacteria’s immune system fights viruses by turning the virus’s DNA against itself through CRISPR-associated proteins (Cas) and guide RNA. In just the past decade, the natural function of the CRISPR-Cas systems has been harnessed intro powerful molecular biology tools to edit the genome, to the point that we can now edit at the base level. Modern information technologies will facilitate the front-end research and leverage discoveries, but the opportunities start with new biological insights.
  2. Automation: Biology was historically the world of wet labs filled with samples, test tubes and pipettes. Today, wet labs are combined with dry labs where computer modelling, simulations and in silico analysis occur. And, increasingly the processes of these two lab environments are automated and digitized. New approaches to sample prep and handling, to “seeing” and measuring the impact of reagents and then gathering massive amounts of data to rapidly analyze are emerging. The automation of preparing inputs, running experimental processes and analyzing outputs has the potential to mirror the journey of semiconductor technology from bespoke workflows to highly digitized, specialized and scalable processes. This automation, combined with massive computing resources, can lead to both broad scale breakthroughs and cost-effective precision medicines over time.
  3. Continuous Learning: Digitized data, across a mix of data types and formats, can increasingly be combined and normalized to transform information into insights. There are massive amounts of data to be captured through increasingly sophisticated techniques like high throughput sequencing and screening and cryo-electron microscopy. Elements of data management, modelling and machine/deep learning can then be leveraged to deepen the insights. In fact, operationalized data models can continuously improve our understanding of a mutation, antigen, biomarker or general disease state. In time, this should lead to curative approaches to most cancers, gene editing that prevents diseases and even rapid detection and containment of viruses.

The Road Ahead

The Madrona team is energized by our journey to continuously learn and support companies at the intersections of innovation. In addition to Nautilus, we have made substantial investments in Ovation.io, TwinStrand Biosciences, Accolade and Terray Therapeutics. And, we have seed-stage investments in a few early-stage companies within this investment theme. But today we especially want to celebrate the news about Nautilus’ Series B round and the potential for this outstanding team and company to positively impact the world by providing affordable and accessible proteomic information and insights to all those who may benefit from them.

FreightWeb For The Win

One of the most fun opportunities I get as a venture capitalist is to partner with founding teams from the very beginning of their journey. It’s with great pleasure that I get to announce one such journey, which we have been working on for a while … our investment in and partnership with Will, Marty, Farah and team at FreightWeb Services.

FreightWeb has all the ingredients we love to see in Day One companies:

  • Massive markets ripe for new thinking and innovation
  • Founders with deep domain expertise who understand the customer(s) and pain point(s)
  • Founders who have been part of rocket ship rides and know what to do when they grab a tiger by the tail
  • Products that leverage copious amounts of data to deliver simple and effective solutions
  • Solutions that deliver clear, tangible, and near-immediate customer value

Simply put, FreightWeb Services’ mission is to increase the utilization of trucking capacity that moves freight in the U.S., an $800 billion market in 2018. As we started collaborating with the FreightWeb team and digging into the domestic trucking market, we were surprised to learn that most trucks transporting loads in the United States carry less than half of their maximum freight capacity. There are a number of reasons for this, but a primary one is that, as a shipper, it’s difficult to buy a fraction of the space in a truck. If you have less than 5 pallets to ship, there’s a service called Less than Truckload (LTL) shipping that works reasonably well. If you have 20+ pallets to ship, renting the full capacity of the truck (Full Truckload Shipping, or FTL) is a relatively simple and cost-effective option. But for all of the loads in-between, there is no great option. Mid-sized loads (often called partials) are hard to quote, hard to book capacity, and expensive. But they don’t need to be. And this is the problem FreightWeb is singularly focused on solving.

Will Payson, the co-founder/CEO of FreightWeb, uses the virtualization of cloud infrastructure, and the ability to sell compute and storage in bite-sized pieces, as a helpful (albeit rough) analogy. Many moons ago, when we wanted to run web applications, we’d have to buy or rent a server dedicated to running that application. Renting a server in internet land is akin to renting a full truckload to move your payload. If you don’t have much traffic on your server, the server capacity goes mostly un-utilized and your rental cost per unit of consumption is high. If you don’t have a lot of stuff to put in a truck, the truck space goes mostly un-utilized and the cost to move a pound of goods is very high. If only we could find ways to rent truck space, on-demand, measured in arbitrarily sized chunks, we could make the system much more efficient.

This problem is worth solving for all the players in the freight-hauling ecosystem. For shippers, buying freight in chunks of any size means they no longer need to optimize their shipping to conform to the restrictions imposed by the current system. They can buy smaller chunks of trucking capacity more cheaply while moving freight more frequently, shifting the balance from batch to continuous flow to better adapt to market demand. For carriers, they can better fill their trucks with freight from multiple shippers, increasing capacity utilization and total revenue. Innovations that enable the parties on both sides of a transaction to benefit financially are hard to find, and that’s one of a number of things that make the FreightWeb opportunity compelling.

We were first introduced to Will by Mike Fridgen, co-Managing Director of Madrona Venture Labs (MVL), a startup studio founded at Madrona in 2012 which has grown significantly since then. Many entrepreneurs start their journeys collaborating with MVL to develop their concepts and accelerate early learning and building. In this case, Will and his co-founder Marty were ready to go, but needed a strong technical co-founder to build out the core technology. Even before we wrote the check, our talent team (Matt Witt and Shannon Anderson) and Chief Product Officer/Venture Partner, Ted Kummert, helped define the spec and develop a list of target candidates for the co-founder/CTO role. We were delighted when Farah Ali, a seasoned technology executive and top of our prospect list, chose to come aboard as a co-founder to launch the company.

It’s early days in the life of the company, but we have been very impressed with the caliber of the team that FreightWeb has assembled, we are excited about the vision they have set out, and we look forward to our Day One for the long-run journey together.

Can Your Seed Stage Investors Go the Distance?

Madrona is approaching our 25th Anniversary as a firm committed to seed stage investing in Seattle and the Pacific Northwest. Over the past 25 years we have made 155 seed stage investments (on average 6 per year), from Amazon in 1995 to OctoML in late 2019. In the early days, Madrona was a “super angel” group, and today we continue our passion for seed stage entrepreneurs and their companies. We are active in the ecosystem as long term supporters of seed groups including Techstars, Madrona Venture Labs, other labs, Create33, UW’s Startup Hall and many more.

By definition, seed stage investments are “Day One” opportunities. We believe that rolling up our sleeves with great entrepreneurs from the earliest days creates a material advantage for company success. We also believe having an investor partner with the capital, commitment, and expertise for the long run (often 10 years or more) provides the greatest opportunity for entrepreneurs to realize their highest aspirations. Madrona was recognized last year for exceptional outcomes for our seed investments by The Information. Eighteen Madrona-backed companies have gone public and over 60 have been acquired for positive outcomes over the past couple decades and we were the seed or Series A lead investor for most of those companies. We also keep learning from the over 75 current Madrona portfolio companies across all stages of growth. Based on our experiences, here are some thoughts entrepreneurs may find helpful about partnering with investors from Day One for the long run.

Finding Long-Term Partners Upfront

We often get asked by entrepreneurs what partnering from seed stage onward with Madrona looks like. We encourage entrepreneurs to talk with the founders and CEOs who have experienced this partnership, including companies that were big successes and those that did not achieve their goals. In addition, founders should ask any potential seed stage investors their perspectives on how they will add value near term and help build the company over the full journey.

Seed stage investors are generally looking for alignment with an exceptional team that is passionate about a customer problem and has a vision for novel solutions. Investors want to work with founders who have an insatiable curiosity and humility around what they know and the questions they are trying to answer. And, these founders have the market understanding and technological capabilities to build a compelling solution while attracting other team members to help build the company. Finally, the founding team and the seed investors need to share general core beliefs about the timing and nature of big market forces that can enable the company to succeed.

As a founder, you hope to find investors with big picture views similar to your own and relevant experiences that will directly help you succeed. It is especially useful to get beyond “pitch mode” and have a conversation about themes and real-world learnings. A good example here is how we have partnered with entrepreneurs around one of our major technology investment themes –the rise of “Intelligent Applications”. For the past decade we have been investing in seed and first venture rounds of companies that fit this broad theme. Horizontally focused companies we seeded in this area include Turi, Algorithmia, Xnor.ai and OctoML. Vertically focused companies have included Amperity, Highspot, Tesorio, Suplari and most recently Clari. The intelligent applications investment theme is just one of our key areas of focus and experience. The main point here, though, is for founders to seek strong alignment even at the seed stage with investors who understand their market and how a company in an emerging sector can be built over time.

Going the Distance with Capital and Value-add

Companies built to last take a long time to build! Entrepreneurs take the greatest risk because they are highly concentrated on one big bet with their company. They deserve investing partners who think and act like owners, show respect and appreciation, and have the resources to support the company over a long period of time. Founders can get the best of both worlds from a venture capital firm that has proven seed stage investing and multi-stage company building capabilities. They should expect investors that will combine their capital, time, experience, and value-add to help a company materially increase the probability of long-term success. Every company has its own journey. But experience has taught us some common lessons and patterns around navigating the entrepreneur’s journey.

  • EVERY company has one or more “near death” experiences. There are just too many things you can’t directly control (macro forces, market timing, regulations) and too many times you make sub-optimal choices (hiring, product priorities, go-to-market strategies) to always get it right. Having both macro awareness and self-awareness helps the most successful entrepreneurs navigate and grow from their “near death” situations. Isilon Systems had hardware reliability issues that forced a product “stop ship” in the Spring of 2003. Smartsheet had to rewrite its front-end in 2009. Amazon may have run out of cash in 2000 if they had not raised a substantial amount of debt before the market crashed. Having investors who have been through these experiences can be grounding and also provide valuable guidance in challenging times .
  • Establishing your own style of a “Learning Loop” culture and process can significantly improve the potential for success. A learning loop culture combines curiosity, triangulation and rapid decision making to help a company learn better and faster than others. It is important to establish this culture early, at seed stage, so that you can absorb and grow from “experiential learning”, quickly dial-in initial product-market fit and create a virtuous cycle of customer and market understanding. This “formula” can help a company achieve early market leadership and establish a foundation for greater success. Your investors will be on this road with you as well so finding curious and thoughtful partners is key to navigating this continuous cycle of learning together.
  • Look around corners and make hard choices at every stage. Circumstances are always changing and scale breaks people, processes and sometimes strategies. For example, finding and starting to scale product-market fit is an exhilarating phase of the company building journey. Having found that initial fit usually means your company will at least have a positive outcome someday. But there are many challenges to scaling and sustaining early market leadership. Initial products often meet a minimum threshold for bleeding edge customers, but the next set of customers expects more. Early employees who are great at running small teams or being individual contributors aren’t necessarily interested in or capable of running larger teams. In addition, established competitors start to mimic your messaging (even if they don’t have a product) and other startups observe your success and “pivot” to your market. At each stage of scaling, you want investors, board members and management teams who you have built a trust-based relationship over years of working together. And, you want them to keep looking around the corner to anticipate emerging risks and respectfully raise valid concerns. This type of trust-based relationship takes time and shared experience to establish.
  • Financial transactions, especially M&A and IPOs, are usually the most intense and potentially misaligned periods in a company’s journey. During these times, trust and transparency are put to the test and are crucial to navigating these waters successfully. Most companies go through several rounds of financings. And, whether it is a Series A, Series F or an IPO financing round, they are always intense. In fact, the process of selling a company in one form or another (acquisition, recapitalization, merger) is the only time that is more anxiety-inducing than a financing round. This is especially understandable for founders and key executives who may be experiencing that process for the first time and are “all in” on the company.

Further complicating the intensity is the potential for misalignment between management and investors, and sometimes between the major investors. Investors can have different time horizons for when they hope to sell. Other times investors have different levels of capital to invest in follow-in rounds leading to different views on financing strategy. Investors also made their investments at different valuations, terms and ownership levels. Often investors can have varying views on strategy, capital requirements and operating plans. And, that is just differences you may encounter amongst your investors! Founders and senior executives might have differing views on all the above topics as well. And, they can feel misaligned with one or more of their major investors/board members as a result.

For example, a broadly held view amongst Silicon Valley investors the past few years was to delay going public for as long as possible. Comparatively “cheap” capital for later-stage private companies was available and the temptation to raise private capital was strong. In some situations where a business didn’t yet have sufficient scale or predictability, staying private was advisable. But, in many cases the combination of cheaper capital and less business scrutiny led private companies to insufficiently focus on unit economics and value creation. Regardless of the specifics for any one company, the IPO timing debate highlights how financing decisions can lead to misalignment between and across management team members and investors. Having investors who have been long term trusted partners accustomed to transparent communication with the entrepreneur gives the company a clear advantage in getting through transactional times.

Some Questions to Consider

While it is hard at the seed stage to be thinking around the corner to future financing rounds, potential IPOs or eventual M&A scenarios, it is critical to understand the experience and perspective of your seed investors. Are they committed to building a trust-based relationship with you over the long-term? Do they roll up their sleeves and continually add value at each stage of the company? Have they shown good judgement and sought alignment during financings and sales of prior companies? And, do they appear energized and culturally aligned with you and your team to build a great company over the long run? If you are answering yes to these questions, you and your investors are likely on an aligned and positive path to success. If you are just starting to evaluate outside capital and investors, I hope these thoughts and questions help you and your company achieve your goals!

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 [email protected].

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.

The Difficult Decision For Heptio To Sell to VMware

We are thrilled for Heptio’s acquisition by VMware! This transaction is another resounding reinforcement that Kubernetes has become the de facto standard for infrastructure across clouds. It is also a tremendous validation of Heptio’s team, vision and execution.

Deciding “when to sell” is one of the toughest decisions faced by founders, boards and investors in growing companies. When presented with an attractive alternative to continuing to build the company independently, boards have a “high class problem” — but one they must consider with utmost thoughtfulness. Heptio was presented a very difficult challenge in this regard.

Heptio was founded by Kubernetes co-creators, Joe Beda and Craig McLuckie, less than two years ago. Madrona had the privilege of investing with Accel in the $8.5M Series A round at the company’s formation, and I joined the board as an Observer. Since this Day One, I’ve never been associated with a company that has accomplished more in as short a period of time. Craig and Joe had an original vision that the Kubernetes’ community would continue to strengthen and its rapid adoption would continue to increase; however, it needed to become easier and enterprises needed help with adoption. From this starting point, they saw an opportunity to lead a cloud native transformation in the enterprise and redefine the deployment and operations of modern applications across clouds.

This vision has exactly played out, and Heptio backed it up with great execution landing a blue-chip array of Fortune 500 customers for their Heptio Kubernetes Service (HKS) including 3 of the 4 largest retailers in the world, 4 of the 5 largest telcos in the US, and 2 of the 6 largest financial services companies in the US. They also made significant impact on the Kubernetes community by contributing 5 OSS projects (ksonnet, sonobuoy, contour, gimbal, ark) and collecting over 5000 Github stars. With this great execution, more funding followed. Nine months in, Madrona led the $25M Series B and the company invited me to join the Board and my colleague Maria Karaivanova joined as an Observer.

Through it all, Craig and Joe were the consummate founders. They approached building their business with laser-focus and a driving ambition to genuinely help customers and create a large, lasting business in the process. They were rock stars in the Kubernetes community, but approached all interactions with humility and pragmatism. They were extremely strategic in thinking through potential moves on the industry chessboard in what is a very dynamic market; but they always realized that none of it would matter if not paired with week-in-week-out blocking and tackling. Perhaps most importantly, they were relentless recruiters and built a world-class team of over 100 employees in less than 2 years, attracting other great leaders like Shanis Windland, Marcus Holm and Scott Buchanan. In doing so, they walked the talk that culture and diversity matter deeply in building a successful business, often passing on a good hire in favor of the right hire who was an even stronger fit for the business.

So, why in the world did we decide to sell? In short, sometimes you receive an offer too good to refuse. Heptio had the team, momentum and plenty of funding to continue; but in VMware, they saw a partner who not only recognized Heptio’s unique insights, assets and market position, but also had the resources and reach to execute more quickly on their vision and deliver an enterprise Kubernetes service to any cloud. The excitement over this potential – and a great financial offer – drove this deal. Market consolidation was always anticipated, and this decision was certainly not a reaction to IBM acquiring Red Hat or other market externalities.

In this decision process, the role of the investor is to ensure the founders and management team have the broad perspective of “what might be possible,” provide an objective view on the market (both opportunities and risks), and ensure the company has the necessary resources. At the end of the day, we support the founders and management team. In this case, while this acquisition came sooner than anyone anticipated, we all agreed that the strategic fit and economics made joining forces the right decision. Through it all, Craig and Joe balanced the interests of shareholders and employees along with other strategic considerations in exactly the way you hope any founders would. Ping Li from Accel was also an incredible thought partner from before company formation through this decision, and overall was one of the best board directors I’ve ever had a chance to work with.

Congratulations again to the Heptio team! We wish you all the best in furthering your mission and vision via the leadership roles you are taking inside VMware. We are excited the whole team is staying intact in Seattle and will continue to grow here. This acquisition is also a great validation of our broader investment theme around the enterprise move to cloud native and open source, and we continue to be very excited about our related investments in companies like Tigera, Shippable, and Pulumi.

Now my and Madrona’s fortunate job is to go find the next great Day One company … but I know it will be difficult to find another quite like Heptio.

Our Investment in Kush Parikh and Player Tokens

I am pleased to announce Madrona’s seed investment in Player Tokens Inc. (PTI) and our partnership with Kush Parikh, the founder and CEO. Kush joined Madrona as an Entrepreneur in Residence (EIR) in late 2017 and explored several ideas with the Madrona team, including a nascent category called crypto-collectibles. Player Tokens is launching today.

There have been a number of interesting crypto-collectible projects … this Medium post by CryptoKitties, one of the pioneers of the space, does a nice job covering both the definition of crypto-collectibles and some of the earliest experiments. This post is another good 101.

As Kush and we explored the world of crypto-collectibles together, a few things really stood out. First, there is an opportunity to bring together the digital and physical worlds (something my partner Matt lovingly describes as DiPhy) to create an entirely new and compelling collectible experience, powered by blockchain. Second, this intersection of worlds is particularly powerful in professional sports, where fans have the opportunity to encounter and interact with their favorite athletes, at games, on television, and through social media. Third, the crypto-collectible experience as it exists is entirely too complicated for the typical pro sports fan and collector.

These observations and a compelling vision for ways that crypto-collectibles could be the entry point to a whole slew of digital and physical fan experiences is what prompted Kush to found Player Tokens at Madrona, and for us to begin this journey together. Step one on the journey … talking to fans and collectors. Having lived in epic sports towns like Seattle and Chicago, we’ve had no shortage of conversations with sports fans and collectors who are interested in modern ways to buy, sell, and trade, authentic, rare collectibles for their favorite players. Through Madrona’s partnership with the OneTeam Collective, we’ve also had the opportunity to connect with the players, associations, teams and leagues, all of whom are excited about the future of crypto-collectibles and the opportunities they will enable in the professional sports world.

A mix of product vision from Kush and team, and feedback from fans, collectors and athletes alike, have shaped the initial version of Player Tokens launching today, as well as the long-term roadmap for PTI. We are excited to be working with Evan Kaplan and team at the Major League Baseball Players Association, who represent the Major League players, as our first business partner in this journey; we look forward to building great things together for fans and professional athletes across the globe.

Special thanks to our friends Ahmad Nassar, Ricky Medina, Casey Schwab and team at NFL Players Inc. / OneTeam Collective, who have been great thought partners and connectors for PTI at this early stage in the life of the company and the category.

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 [email protected] 206-972-5514

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? [email protected]

 

The Epitome of a Day One Entrepreneur

(Jason LeeKeenan and Russell Wilson of TraceMe)

At Madrona we meet many outstanding entrepreneurs and innovators. Sometimes we meet them when they are starting a company, like Sujal Patel from Isilon or Jesse Rothstein from Extrahop. Other times, like Aaron Easterly from Rover or David Shim from Placed, we got to know them as “rising stars” at prior Madrona companies before they became an entrepreneur. But, this year we got to know someone who for so many of us we feel like we already knew. Over the months of working with him and investing in TraceMe, we have discovered how much more there was to learn about this amazing Day One entrepreneur and the company he started.

The entrepreneur is Russell Wilson and the company he founded is TraceMe. You likely know him best as the All-Pro, Super Bowl Champion, starting quarterback for the Seattle Seahawks. And, attributes that have contributed to Russell’s success in pro football are among those that make him the epitome of a Day One entrepreneur. He is customer-centric, passionate about the opportunity, focused, determined and an attractor of complementary talent.

TraceMe Product Showcase. Russell Wislon, Ask Me Anything.

On the talent front, Russell worked with our friends at Pioneer Square Labs to incubate TraceMe and recruited an amazing star in Jason LeeKeenan to be CEO. Jason’s background includes key roles at Hulu in the early years and Zulily. And, while he is warming up to the Seattle Seahawks as a life-long Patriots fan, he deeply understands the TraceMe opportunity and how to build a sustainable company through innovative content. Jason and Russell are building a world class team of software engineers, video producers and content editors at TraceMe to attack this challenge. Madrona is delighted to be partnering with them as the lead investor in TraceMe’s $9 million Series A financing closed in the spring and announced this week.

At the heart of TraceMe is the idea that celebrities and their loyal fans want more direct and engaging ways to interact. We all see clues about this interest in social media experiences that go beyond current channels in platforms including Twitch for gamers and YouTube for live video bloggers. TraceMe is building a platform tuned specifically for celebrities like Russell and their super fans. TraceMe will create meaningful experiences for fans with compelling content, products and experiences.

We hope that fans will download the TraceMe app this week and give it a try. The app is in beta so your feedback will be helpful as the TraceMe team prioritizes new features and content. Similar to how we have gotten to know Russell Wilson better, we hope you will feel closer to him and the things he is passionate about. These include faith, family, football and finding ways as an entrepreneur to help fans more personally connect with celebrities. As opening week of the regular NFL football season kicks off, we look forward to partnering with the great Day One entrepreneurs at TraceMe to help them win big!

Day One in the Cloud with Skytap

It was the spring of 2006. Professor Hank Levy, incoming Chair of the University of Washington Computer Science Department (now the Paul G. Allen School) and I were catching up. Hank and I had previously worked together on a successful start-up that he and his grad students co-founded called Performant. As I sat watching Hank type on a keyboard, the words he typed appeared on a nearby computer monitor. But, the application was not running on a local device, it was running “in the cloud.”

As hard as it may seem, in the spring of 2006, AWS had not launched Simple Storage Service (S3) or Elastic Compute Cloud (EC2) yet. But Hank, two other remarkable Professors (Steve Gribble and Brian Bershad) and PhD student, David Richardson, were working on the underlying networking and compute technologies that would help power the cloud. As this group discussed the potential customer needs their technology could help address, we decided to found a company.

As we have written about recently, it is both energizing and inspiring to partner with founders from Day One. Skytap, originally known as “illumita”, is the company we seeded in the summer of 2006 along with the Washington Research Foundation and Bezos Expeditions. Eleven years later, Skytap is announcing its $45 million Series E round led by Goldman Sachs.

Skytap has always attracted incredible talent to the company. In the early years, the company had to build most of a ‘cloud infrastructure platform’ themselves as the market for modern hypervisors, public cloud infrastructure and enterprise customer readiness were immature. At that time, the team naturally focused on hiring world class product management and engineering executives. In more recent years, under Thor Cullverhouse’s leadership, Skytap has built a world class go-to-market team. Enterprise customers are now fully embracing the cloud in all its forms – public, hybrid and private. And Skytap is accelerating cloud innovation for the hybrid applications that are developed and increasingly deployed by enterprises in the cloud.

The Madrona team has had the privilege of partnering with Skytap’s founders and team from Day One. Eleven years later, we have never been more excited about the success and long-term potential of the company. It is interesting to note that the three Madrona backed companies that went public in the past 12 months were part of the Madrona family on average for thirteen years at the IPO date. We look forward to seeing what happens in two years when Skytap celebrates their thirteenth birthday!

Booster’s Focus on Customer and Unit Economics Pays Off

Madrona has been celebrating successful IPOs and M&A transactions recently, with several companies we partnered with from the earliest days. In fact, Redfin (RDFN) went public last week and the Placed acquisition by Snapchat closed two weeks ago. These companies combine digitally-driven and physically-driven capabilities to deliver real value to customers. Some of our youngest portfolio companies have applied this combined digital and physical world approach to other categories including Booster’s in the world of mobile fueling.

Booster was founded by Frank Mycroft a couple years ago, and Madrona was there at Day One to lead the company’s seed round. Frank and the early team were some of the first entrepreneurs to use our innovation space at Madrona’s current offices. Booster enables consumers to have their car filled with fuel while at work. This mobile fueling service is offered at a market fuel price along with the convenience and environmental friendliness of professional delivery. Many major corporate campuses in Silicon Valley use the service today, including titans such as Cisco and Oracle who benefit from Booster as a strategic employee benefit. The amazing Booster team have thoughtfully balanced four key areas: understanding the customer (both the consumer and the employer); developing intuitive mobile apps for consumers and drivers; designing efficient and effective physical delivery systems; and navigating federal, state and local regulations and relationships. Blending these elements in to a compelling and economically sustainable offering is hard. But, Booster has done exactly that.

Booster announced their $20 million Series B round today led by Conversion Capital and Madrona is pleased to once again be a major participant in the round. In an era where “on demand” service businesses have mostly been out of favor, we believe entrepreneurs like Frank who are obsessed with customers AND unit economics can build lasting and significant companies. And, Booster’s rapid growth, customer satisfaction, campus economics and substantial up round all indicate that they are well on their way.

We are excited to continue partnering with the Booster team, their customers and our terrific co-investors to build a truly special company.

Partnering from Day One with Founders

There is something very special about being part of the team that builds a company from Day One. We at Madrona have been both dogged and fortunate in our pursuit of Day One opportunities. Placed is one of those. The company’s acquisition by Snap! which closed last week is the beginning of another journey for the company and a huge endorsement of the path the company has taken to this point.

In the past twelve months, five of the companies the Madrona team has been involved with since Day One had significant positive M&A activity or have entered the public markets. These companies are Apptio, Impinj Turi (fka Dato), Lattice, and the aforementioned, Placed. In every case, these companies had exceptional founders who were with the company at day one and continue to be key executives at those companies or their acquirers today. It is also true that these founders and their companies had moments of despair, uncertainty, exhilaration and ultimately success. These stories are truly incredible journeys and we are thrilled to have been there from the beginning to participate in the evolution and support at many points along the way.

Placed – A Day One Journey from Sewichi to Snap

Placed is a great example of how these companies grow. While many of our companies have a founding team, Placed was initially founded just by David Shim. David had previously worked for two other Madrona portfolio companies, Farecast and aQuantive, and we had recognized him as a talented “rising star” in those companies. After a short stint in California at Quantcast, he moved back to Seattle in early 2011 and shared an idea he had for creating a company focused on location analytics. We had liked David and his scrappy approach at Farecast so we jumped on board. David set up shop in our innovation space (then more limited than now) and got to work.

David understood that mobile and the cloud made it possible to create intersections of data between digital and physical locations. With that he started coding, testing and talking to potential customers.

Soon after he came to Madrona, we helped found and seed fund Sewichi (Korean for Location, Location, Location) and then set to work helping David refine his ideas and recruit his team. Initially he hired engineers and data scientists to help work with the data they would obtain – people like Nick Gerner and Weilie Yi who he connected through his network. And then David added Andrea Eatherly who he had worked closely with at WebTrends and Quantcast to lead audience recruitment and customer success. Over time, Madrona helped recruit other key team members such as Elliott Waldron and Aaron Averbuch. All of these core team members are still with Placed today.

The early days were hard as the iOS and Android ecosystems were nascent and applications that measured location were prone to using battery life. In addition, it was not clear what economic incentives would be required to build a meaningful panel of consumers. And, then there was the challenge of figuring out what model would be best to monetize the location-related data – research, measurement, or becoming an ad network?

By listening to customers (in this case the combination of advertisers, online publishers and ad networks) and making a strategic decision to remain an independent measurement company, Placed began to gain traction in the market. In the past five years, Placed transformed the way brands understand the impact of their marketing investments in the digital and physical worlds, and the company has consistently grown revenues 100%+, beat their operating plan and done so profitably.

There have been many important strategic and partnering decisions to make along the journey as the world of digital advertising continually was shaped by trends like programmatic buying, the shift to mobile-first customer usage and the rise of social media engagement. Last year, Placed added another industry expert and long-time Madrona friend Brian McAndrews to the board to help navigate these changing market dynamics.

By early 2017, Placed was pulling away as the market leader and the board sensed an opportunity to “step on the gas” with an expansion round of capital. Multiple options emerged, and one of those options turned in to a conversation with social media app company, Snap! Placed ultimately took the route of acquisition by Snap, which closed last week. We are really excited to see how the Placed team, as an independent line of business, will help Snap continue to innovate and differentiate in the markets where they compete.

It is a privilege to work with companies from Day One – and we celebrate the founders who have the persistence, grit, and humility paired with the conviction to build a business, nurture a team and partner with both us and also the important industry stakeholders to move their company forward. We have been on a similar journey with many other companies including Rover, Redfin, Turi, Lattice, Apptio, and Impinj – to name just a few that have been recently in the news, and look forward to applying our learnings and experience to working with new Day One founders.

If you are a potential Day One founder interested in working with a Day One partner, give us a shout! Check out the bios here and reach out.