The Man Behind Madrona’s Investment in Searchandise: Lessons in VC, Company-Building, and Selling to Microsoft

If you live in Seattle and follow technology trends, you know who Brian McAndrews is. If you’re a Boston techie, though, it’s possible that you don’t. Luckily, you have Xconomy to help bridge the gap between East and West. (Bear with me here.)

McAndrews is a relatively new managing director at Madrona Venture Group, a Seattle-based VC firm, and he led the $7 million investment in Beverly, MA-based Searchandise Commerce announced last week. It is his first deal with Madrona. In a previous life, McAndrews was the chief executive of Seattle-based aQuantive, the digital advertising and marketing company, before becoming a senior vice president at Microsoft.

I’m always surprised by how many people outside Seattle don’t know the story of aQuantive (myself included, until I moved here). This company built some of the pillars of online ad-placing and tracking technology, went public in February 2000 (talk about good timing—any later and it might have folded), and was bought by Microsoft for $6.4 billion in 2007—the largest acquisition Microsoft has ever made. McAndrews led aQuantive for eight years and was in charge of the sale and integration. He ran the advertiser and publisher solutions group at Microsoft before leaving the firm in early 2009.

Last week, I spoke with McAndrews about a range of topics: what makes Searchandise Commerce a compelling company for Madrona; his personal investment philosophy; the broader future of venture capital; and a little more about the aQuantive and Microsoft story.

McAndrews (see photo below), a Harvard University alum, says he first became aware of Searchandise Commerce through its current CEO, John Federman, and his board members Ross Goldstein, co-founder of DFJ Gotham Partners, and Sarah Fay, the former CEO of marketing agencies Carat, Isobar U.S., and Aegis Media North America; Fay had been an aQuantive customer for years.

Brian McAndrews

What intrigued McAndrews about Searchandise is that it combines e-commerce and online product search with the kind of display advertising and positioning found in offline retail, where you’ll walk into a Best Buy or Whole Foods and see certain products or shelves arranged to make them more prominent to consumers. (Manufacturers and advertisers pay some $20 billion a year for this kind of positioning.) With Searchandise Commerce, a manufacturer of flat-screen TVs, say, can bid to improve its ranking within a paid search engine like

This pays off in the real world as well as online. “A huge number of people search online even if they buy offline,” McAndrews says. “What’s appealing to retailers is that the vast majority of people who come to their sites don’t make a purchase.”

Searchandise aims to change that. As my colleague Wade previously reported, the company was founded in New York in 2000, and was formerly called Decidia and Guidester. In 2008, Federman started as CEO and moved the company to the Boston area. The firm’s strategy also shifted away from product navigation tools and towards paid search. McAndrews calls the company’s recent direction “an important wave of product search,” and he notes that it’s the kind of approach that would make sense to a huge e-retailer like “It’s a very ripe area, though it’s very early,” he says. (It’s possible Amazon is working on something like this itself, but sources I’ve talked to outside the company don’t think so yet.)

Madrona Venture Group is known for backing Amazon, as well as other tech companies including Isilon Systems, Mercent, AdReady, Farecast (now part of Bing Travel), and iConclude (now part of Hewlett-Packard). The VC firm maintains a strong relationship with Amazon; Madrona co-founder and managing director Tom Alberg remains on the board of the e-commerce giant.

McAndrews was quick to point out that Searchandise Commerce is “not competitive with anything” else in Madrona’s portfolio; that the startup can still be considered early-stage because of its strategic shift in the past year; and that the East Coast deal doesn’t signify any desire to diversify geographically. Madrona remains committed to Pacific Northwest companies, he says, but it is open to making investments in other parts of the country. In this case, the deal came about because of “pre-existing relationships with people” in McAndrews’s network. “Otherwise we might not have seen this,” he says.

Madrona looks at three main things when it evaluates companies, he says: What’s the product, what’s the size of the market opportunity, and who’s on the team. “An entrepreneur should hit on all those things,” McAndrews says. “I look for someone who comes across as self-aware of the risks. I expect them to say, ‘This is why I’m excited about it, here’s the team I’m starting to put together, this is why I believe it can be a very significant opportunity, and this is what we’re seeing so far. Here are the customers. Here are the risks. Here are other companies who tried and failed, and others we’ll run into.’ An honest assessment that leads me to believe this is a CEO who will be upfront with us over time, and not have his head in the sand.”

I asked what broader lessons he brings from his deep experience in Internet advertising. One is a “long-term vision of one view of the customer,” he says. “Whether online or offline, you want to have one view of the consumer.” In other words, the real and virtual worlds are increasingly merging when it comes to retail. Another point is that “digital advertising and media are going to be around for the next generation,” he says. He mentions companies that seem to have come out of nowhere to become big players, including Groupon and Foursquare. (McAndrews would probably disagree with aQuantive co-founder Nick Hanauer, who recently told me he thinks online advertising is essentially “done,” the ecosystem is “baked,” and he is avoiding making new investments in that sector.)

Speaking of big players, I tried to pin McAndrews down on what the future will hold for Microsoft, his former employer, in digital advertising. “They’re behind, and they’re going to be a significant player,” he says. “They’re clearly focused on the online advertising area…They’ve turned the barrel towards search, they brought Qi Lu in [as president of the online services group]. I see them as a potential acquirer of companies we might invest in.”

Of course, McAndrews knows a few things about selling a company to Microsoft. The key in the 2007 aQuantive deal, he says, is that “we were building a company and we were very excited, it had long-term potential. We weren’t building it to sell to anyone. But we knew we’d be valuable to someone. We kept an eye on the strategic landscape. We were always aware that Google and Microsoft and Yahoo were large companies, and potentially could be threatened or feel complementary. When Google bought DoubleClick, that was a significant change in the landscape.”

He says aQuantive was fortunate to have a strong technology position and multiple bidders. “It was a great time and a great fit.” He adds that the integration of aQuantive within Microsoft, which some observers predicted would be a difficult one (in part because it involved an ad technology platform, an ad network, and a marketing agency), “went well” despite some “differences in culture.” (In the past year, though, there has been an exodus of former aQuantive execs from Microsoft; the latest is Scott Howe, vice president in the advertiser and publisher solutions group, who is leaving the company next month and will be succeeded by Rik van der Kooi.)

As a new VC, McAndrews says he thinks venture capital has a bright future. But there’s no question that some contraction of the industry is already occurring. “There was too much money in the system,” he says. “In 1999 and the 2000s, there were too many firms chasing too few great companies…What we will see is people investing less in venture. Our [limited partners] and others’, colleges and pension funds, when the downturn came, saw their liquid assets had to be spent, so non-liquid assets became an even larger percentage of their investment portfolio than they’re supposed to be.”

Indeed, there have been various reports predicting that anywhere from half to three-quarters of all VC firms will disappear in the next five to 10 years. This, McAndrews says, is “unfortunate” but probably healthy in the long run.

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One response to “The Man Behind Madrona’s Investment in Searchandise: Lessons in VC, Company-Building, and Selling to Microsoft”

  1. As a Boston e-commerce startup founder, it’s great to see Madrona investing in an e-commerce-related company in Boston. (You are right…I had not heard of Brian McAndrews…thanks for the education.) Given Madrona’s Seattle location, and ties to Amazon, they can actually add new and meaningful expertise to the Boston entrepreneurial ecosystem. I look forward to seeing what Searchandise develops over the next year with this funding support, and to how Brian McAndrews takes advantage of his new Boston ties.