Investor Survey, Part 2: A Pair of Seattle VCs on 2016 Themes

Will a new crop of Seattle startups rise to world domination? Will virtual or augmented reality applications create the next powerhouse tech company?

Those are two of the overriding hopes and ambitions emerging from the Seattle segment of my informal cross-country survey of leading investors as I seek to unearth core investment themes and premises as we dive into 2016.

Seattle is the second city in my survey, which began last month in Xconomy’s headquarters region of Boston and will continue quasi-regularly across much of our 10-region network.

In Seattle, I enlisted the participation of two leading investors (a third laggard never delivered—you know who you are). This dynamic duo consists of Chris DeVore, general partner and co-founder of Founders’ Co-op and managing director of Techstars Seattle; and Matt McIlwain, managing director of Madrona Venture Group.

Let’s get right to their ideas and concepts—which for the most part I am just letting them explain in their own words, with minor editing.

Channeling the best of the Pacific Northwest + doing it “uncomfortably early”—Chris DeVore, Founders’ Co-op

ChrisDevore“Founders’ Co-op is a unique animal in the venture landscape: the only seed-stage fund focused specifically on the Pacific Northwest. Thanks to the outsized success of companies like Microsoft and Amazon, lots of great investors are willing to make bets here at Series A and later, but—so far—we’re the only ones who have made seed (and pre-seed) investing in the region our sole focus.

“We believe the Cascade region—from Portland in the south to Vancouver in the north—has a differentiated mix of incumbent firms, growth-stage companies and academic and research institutions that will continue to produce world-class innovation-driven companies. Early leaders in enterprise software (Microsoft) and aerospace (Boeing) rub elbows with current leaders in digital commerce (Amazon, Starbucks, Nordstrom) and cloud infrastructure (Amazon and Microsoft). Public universities (University of Washington) and private research foundations (Allen Institute for Artificial Intelligence, Bill & Melinda Gates Foundation) constantly inject new ideas and talent into the regional ecosystem in emerging areas like machine learning, artificial intelligence, natural language processing, medical devices, biopharma, and alternative energy.

“We aren’t thematic investors, but rather seek out founders who share our belief in the ability of our regional talent pool and industrial DNA to build companies here that dominate their global opportunities. (We also operate the Techstars Seattle accelerator program as a way to attract and unlock talent with that same conviction.)

“This strategy has led us to back exceptional founders—often as the sole check writer, but increasingly by drawing out-of-region seed funds into first-round syndicates—who then go on to raise growth capital from strong out-of-region firms.

“A few examples include Simply Measured,, Urban Airship, Remitly, and Outreach, with many more that are still ‘too early’ for most investors, but already on the tracking radar of the Valley firms who quietly believe what we do about the excellence of our regional market.”

Intelligent applications and the rising wave of virtual reality and augmented reality—Matt McIlwain, Madrona Venture Group

Matt McIlwainMadrona is a little downstream from Founders’ Co-op, investing in both seed and Series A tech sector companies mostly. It also seems to be casting its eyes a bit more widely, although it is primarily focused on the Pacific Northwest as well.

As he considered his top investment themes for 2016, McIlwain zeroed in on intelligent applications and the ascendance of virtual reality and augmented reality (VR/AR) applications.

“Intelligent apps increasingly impact our daily personal lives via apps on our phone and services on our PC that can predict what we want to do, where we want to go next based on past behavior and cohort behavior,” McIlwain notes. “In business, these apps take the mounds of corporate data and distill it into something actionable that drives the business. As big data and predictive analysis become more widespread and companies start adopting AI [artificial intelligence] techniques via Google, Facebook, or Seattle’s own Allen Institute for AI, we believe that intelligent apps will be the norm and will improve productivity and business outcomes.”

[Note from Bob: This is remindful of the conversational and intelligent interfaces theme that Larry Bohn of General Catalyst Partners identified in the Boston installment of this series.]

“Another area of particular interest, which leverages big data and also the cloud, is the emerging world of virtual reality and augmented reality. Though the top of the line VR headsets will begin shipping in the second quarter, these technologies already promise to be a game changer for how consumers experience entertainment and, we believe, how business is conducted. We have already seen VR tours pop up for real restate (Redfin) and it’s clear that gaming platforms are going to embrace this new medium. On the business side, we see an opportunity to create messaging and productivity applications that can significantly change the work environment. While this is a long game, we believe it will be a strong market and one worth diving into early.”

Thanks to Chris and Matt—great stuff from a pair of Seattle’s best-known tech investors. As previously noted, I was supposed to have a third take…I’m not bitter.



Bob is Xconomy's founder and chairman. You can email him at [email protected] Follow @bbuderi

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