UW Faculty Entrepreneurship Seminar Series

Greg Gottesman Madrona Venture Group December 5, 2006

Madrona Overview

› › › › › › Madrona is a leading venture capital firm focused on sourcing and growing early-stage technology companies in the Pacific Northwest Founded in 1995, headquartered in Seattle $425M+ under management across three funds » » Investments made in over 70 companies Current fund is $170M Madrona III fund (2005 vintage) Average initial investment $2M – $5M (occasionally smaller) Madrona team » 4 Managing Directors: Tom Alberg, Paul Goodrich, Greg Gottesman, Matt McIlwain » 6 Strategic Directors: Jack Creighton, Jerry Grinstein, Keith Grinstein, Pete Higgins, Bill Owens, Bill Ruckelshaus » » 3 Venture Partners: Prof. Oren Etzioni, Prof. Dan Weld, Brian Goffman 6 additional Investment Professionals http://www.madrona.com

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Current Portfolio

› Madrona invests in enterprise software & services, consumer software and services, and wireless & infrastructure › Current active portfolio of 27 companies

Enterprise Software Consumer Software Wireless & Infrastructure

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Exits

Over 30 successful exits via IPO or acquisition

Selected Exits

NASDAQ: AMZN Acquired by MediaMetrix Acquired by United Online Acquired by EMC Acquired by MERQ Acquired by Microsoft Acquired by ADP › Recent highlights: » » » Acquisition of Employease by ADP in October Isilon filed for IPO September 1 Microsoft acquired Seadragon Software in February Acquired by Thomson 4

Deal Sourcing

› Ideas and companies are discovered through multiple sources › During Q3 of this year, Madrona reviewed over 150 deals and listened to over 75 formal presentations › › Primary sources include: » Extensive networks of Madrona team » » UW Computer Science Department Major local companies (Microsoft, Amazon, Real, McCaw Cellular) » » Portfolio “alumni” Referrals A “trusted referral” is the most effective way to have your plan stand out 5

Strong Partnership with UW

› › 10 spin-outs (and counting) from the University of Washington Current portfolio companies: › Portfolio alumni: » AdRelevance (acquired by MediaMetrix) » » » Appliant Asta Networks Netbot (acquired by Excite) » » Nimble Technology (acquired by Actuate) Performant (acquired by Mercury Interactive) » Viatru 6

What Do We Look for in Prospective Companies?

Companies that scale … or a potential VC trap?

Source: http://www.thevc.com/strips/strip36.html

; Robert von Goeben and Kathryn Siegler 7

What Do We Really Look for in Prospective Companies?

› Great team › Large opportunity › Competitive advantage › Compelling business model/value proposition › Right market timing › Reasonable terms 8

Current Investment Themes

› Advertising increasingly moves online › Open source becoming more prevalent in the enterprise › Digital media explodes – especially “user-generated” content › Virtual applications and services emerge 9

Top 10 Lessons Learned…

1. Good technology is not enough 2. Valuations matter 3. Hiring the wrong CEO is death 4. Too much money can be a bad thing 5.

A great deal structure can’t rescue a bad deal 6. Control is underrated 7. Choose the right financial partners and service providers 8.

Don’t invest in a crowded space 9. Listen to customers and build what they will pay for today 10. Cash is king 10