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Madrona’s team at the firm’s annual meeting last year. (Madrona Photo / Dan DeLong)
Madrona, the largest venture firm in the Pacific Northwest, raised $770 million for two new funds as the longtime Seattle-based investor looks to back a new batch of tech startups.
Despite a slowdown in the venture capital sector and an IPO drought, Madrona Managing Director Matt McIlwain said the fundraising process went smoothly.
The new fund, the firm’s tenth, is up from Madrona’s $690 million fund in 2022, and its $345 million fund in 2020. It is split between two investing vehicles: a traditional fund for early stage startups (about 60% of the $770 million), and an “acceleration fund” for more mature companies, including those that Madrona may have missed out on.
Madrona expects to invest in about 30 companies at the pre-seed, seed, or Series A stage from the new funds, and about 12 at the Series B stage and beyond.
Venture capital firms have slowed their pace of fundraising dramatically amid higher interest rates and muted exit activity.
After raising a whopping $188 billion across 1,625 funds in 2022, venture firms reeled in $76.1 billion across just 508 funds in 2024, according to PitchBook.
Established firms such as Madrona had an edge over newer funds and captured more LP dollars in 2024, raising 79.4% of total capital — the highest concentration in the last decade, according to PitchBook.
Madrona has the biggest fund across the Pacific Northwest but it’s still small relative to the so-called “megafunds” that raised massive rounds in 2024, including three funds above $5 billion.
McIlwain said limited partners are concerned broadly about “DPI,” or distributions to paid-in capital, a measure of how much money the firm returns to its backers.
After a venture capital boom in 2021-22, fewer companies are going public or getting acquired. That’s leaving LPs wondering when they’ll be able to liquidate their investments.
Matt McIlwain. (Madrona Venture Group Photo)
But Madrona had a “great” year for DPI in 2024, McIlwain said, pointing to portfolio company exits such as pet-sitting giant Rover, which sold to private equity firms, and legal tech startup Lexion getting acquired by Docusign.
McIlwain is bullish about the year ahead given some macroeconomic trends and the federal administration shift, describing his mindset as “risk-on” in a LinkedIn post this week.
Conversations with portfolio companies are about “foot on the gas for operating plans,” McIlwain told GeekWire.
As for new investments, Madrona is making various AI bets “up the stack” in companies beyond the model layer.
“We think a lot of the value is going to be captured in the agentic and application layers,” McIlwain said. In other words, companies that develop software for a specific customer problem in a particular domain.
While the firm may be avoiding startups going up against the likes of OpenAI or Anthropic, it is keeping an eye out for companies that build underlying infrastructure for AI applications.
“Is there some better version of Plaid or Stripe, for example?” McIlwain said.
Madrona will continue looking at domains including enterprise software, travel, life sciences, and health tech.
Madrona focuses on startups based in the Pacific Northwest, but has expanded in recent years, opening an office in Silicon Valley in 2022.
The firm expects to invest 75% of its new funds in the Pacific Northwest, and the rest on companies outside the region.
McIlwain said Madrona is still betting big on Seattle, where it has deep relationships with local tech titans Microsoft and Amazon — a connection it uses to help portfolio companies “unlock doors,” he said.
There are several firms across Seattle raising new funds and increasing competition for Madrona, which launched in 1995 and was an early backer of Amazon, along with other Seattle-based companies such as Redfin, Apptio, and Smartsheet.
McIlwain said Madrona’s secret sauce is not being too big, or too small, allowing it to invest across the lifespan of a startup.
“The key idea at Madrona is that we are the best of both worlds,” he said, noting its ability to invest at the initial stage of company formation, all the way to an IPO.
