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The DL - An inside view into Pacific Northwest Tech

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Hey! Welcome to The DL! This is a weekly newsletter about tech, startups, entrepreneurship, and inves
 
July 29 · Issue #6 · View online
The DL
Hey! Welcome to The DL! This is a weekly newsletter about tech, startups, entrepreneurship, and investing in the Pacific Northwest.
If you have thoughts, questions, or comments, hit reply - I’d love to hear from you! 👋 Referred by a friend? Sign up here.

Seattle Unicorns
It’s been a great year for Seattle unicorns. A couple weeks ago, Icertis announced a $115M funding round that valued the company at $1B. In May, Auth0 announced a $103M round that valued the company at ~$1.1B, and in April, Outreach announced a $114M round that valued that company at ~$1.1B.
(And following the buzz on Microsoft being a great launching pad for startups, all three companies are led by CEOs who worked at Microsoft for at least seven years)

Reading through these announcements, I was wondering how many unicorns are founded every year in the Pacific Northwest. Looking at the data since 1994 (when Amazon started), 31 startups have reached the billion dollar mark, and here’s a graphical summary of all of them.
Some quick observations:
  • On average, 1.5 unicorns get started every year in the Pacific Northwest
  • … and this number is growing. Companies like Remitly and Rover (both founded 2011) have raised rounds at $900M+ valuations but aren’t on this list quite yet
  • Prior to 2003, there were 2x as many consumer unicorns as enterprise unicorns; since 2003, it’s flipped to 3x as many enterprise as consumer
  • This list doesn’t include businesses like AWS or Xbox, which I view as “startups” within Amazon and Microsoft that could be big standalone companies. AWS alone could be worth $400B

Here’s my full PNW unicorn tracker if you want to take a look or help me make this chart prettier.

Softbank 2 -- Looking for the next 105 Robinhoods
2017 Vision Fund pitch deck
Last week, Softbank announced that they raised $108B in their second Vision Fund with investors like Apple, Goldman Sachs, and Kazakhstan’s sovereign wealth fund.

Apparently, Vision Fund 1 has had great returns on paper (29% per year), but because they have to set aside cash to pay a 7% annual return to some investors, they’ve already used up most of the cash in the first fund, and it’s time to raise fund 2.

Here is some back of the envelope math on how crazy the Vision Fund is:
  • Softbank has to invest $200B
  • A top quartile return for venture capital is a 2x return
  • To reach that benchmark, Softbank needs to return $400B to its investors
  • Assuming Softbank owns ~50% of the companies it invests in, that means it needs to own companies worth an aggregate of $800B
  • $800B is a lot of money. That is 11 Ubers, or 28 Airbnbs, or 105 Robinhoods

Softbank has made an enormous impact with the Vision Fund, but it’s still unclear if all this cash actually helps startups succeed. For example, after raising $300M from SoftBank in 2018, Wag has struggled to keep pace with Rover, and a recent CB Insights analysis found that the most highly funded startups underperform those who raised less.

(By the way, in case you want to learn more about Softbank and their CEO Masayoshi Son, here is an awesome podcast from Acquired about the story behind Softbank and the first Vision Fund.)

Other stuff I've been talking about
🍔 $BYND - Beyond Meat IPOed at $25 in May has nearly 10x-ed to ~$225. At this price, it’s worth more than 25% of the S&P 500, including companies like Campbell Soup ($10B revenue) and Conagra ($10B revenue). Beyond Meat’s 2019 revenue forecast? $210M. Their IPO lockup ends in ~3 months, can’t wait to see what happens
🌌 Cosmic Crisp - “Unprecedented,” “on steroids,” “off the friggin’ charts,” and “the largest launch of a single produce item in American history.” Fun read about WA state leading disruption in a totally different industry
🕹️ 2048 Blast - I just released my second ever mobile game on iOS and Android! Try it out, and let me know what you think!

Please Hit Reply! (Or Subscribe or Forward!)
About me: I work as an investor at Madrona Venture Group, a Seattle-based venture capital firm that has been early partners with companies like Amazon, Smartsheet, Apptio, and Redfin.
I’m writing this to connect with other people who are interested in what’s going on in PNW tech, so if you have thoughts, questions, or comments, hit reply - I’d love to hear from you! 👋

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