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The DL - Five Years of PNW Venture Capital, #WashingtonCheck, Seattle's Newest Unicorn, and More GPT-3

Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.
August 3 · Issue #59 · View online
The DL
Welcome to The DL, a weekly newsletter about tech, startups, and investing in the Pacific Northwest.

This week’s issue looks at the last five years in PNW startup world, the TikTok acquisition, Seattle’s newest unicorn, and more GPT-3 demos.

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Five Years of PNW Venture Capital
I’ve been at Madrona for five years now, which means I’ve finally reached a kindergarten-level understanding of startups and investing! 🥳 In celebration, here’s a look back at how the PNW startup market has changed over those five years.

1. Many more deals, and even more capital
Since 2015, there’s been a 2x increase in the number of VC-backed seed deals per year, and the median seed deal has gone from a $1M investment at a $5M post-money valuation to a $2M investment at a $10M valuation.

Because of the combination of more deals and higher valuations, there’s also been a 3x increase in total capital invested in seed deals per year. There are many more people starting companies than five years ago, and there is a lot of investor demand for PNW startups.

2. SaaS is the largest category, but life sciences and healthcare are growing quickly
Number of PNW Series A deals by vertical
Number of PNW Series A deals by vertical
One thing that hasn’t really changed over the last five years is the biggest proportion of Series A deals over the last five years have been in SaaS. There are, however, more companies working on AI/ML and Big Data products, and both of those categories are growing steadily.

HealthTech, Life Sciences, Wellness, and Oncology, on the other hand, were a much smaller proportion of deals in 2015, but they’ve all grown significantly, as I’m sure you’ve seen in The DL’s monthly deal roundups.

Other categories to watch are cannabis (one big jump so far) and real estate (where Seattle probably has the most experienced entrepreneurs and advisors in the world).

3. Investors are coming from all over to invest in Seattle
Number of PNW investments for VCs with $100M+ AUM
Number of PNW investments for VCs with $100M+ AUM
There are ~80 VC firms who have made at least 5 investments in PNW-based startups over the last 5 years, and there are 20 VC firms who have made more than 10 investments in PNW-based startups over the last 5 years.

As more investors continue to make or start making investments in Seattle startups, founders have more options for fundraising, and deals are getting more and more competitive.

4. Unicorns, not so mythical anymore
When I started at Madrona in 2015, there were only ~20 companies in the PNW that had reached a $1B+ valuation, with 1-2 new unicorns being minted each year. Since 2015 there have been 18 new unicorns, including 4 in the last two months!

PNW companies don’t spend a lot of time tooting their own horns about these types of milestones, but this is a great data point showing that not only are we seeing more and more startups getting funded each year, they are also continuing to grow and become billion dollar companies.

5. Don’t forget about Big Tech!
Amazon is worth ~$1.6T as of the writing of this newsletter, and their stock has 6x-ed since 2015. When their stock goes up or down 2.3%, that is $36B, or one Stripe (the most valuable startup in the US). 🤯

Living in the PNW tech ecosystem, it’s easy to forget that Amazon and Microsoft are the two most important productivity, ecommerce, and cloud companies in the world, AND they have also successfully built multiple $1B+ businesses in the last 5-10 years.

Take Teams, for example. Microsoft announced Teams in 2017. Two years later, Teams overtook Slack ($16B market cap) in daily active users and is now riding the work from home wave to even more growth and engagement.

TL;DR: It’s been an amazing time to work in the PNW startup ecosystem. Early stage startups, late stage startups, and the big tech companies are all making it rain!

Microsoft's #WashingtonCheck
alternatively, "... you gotta get with the feds" 🎤
alternatively, "... you gotta get with the feds" 🎤
OK, so what could make the PNW tech ecosystem even hotter? Microsoft acquiring TikTok! Lots of interesting details came out about this deal over the weekend:
  • On Friday morning, CFIUS, which reviews all cross-border deals, was told a Microsoft / TikTok deal was imminent
  • On Friday evening, Trump said he wanted to ban TikTok in the US, which “floored those involved in the talks”
  • This led to ByteDance (TikTok’s parent company) making several concessions, including CEO Zhang Yiming selling his stake in TikTok
  • TikTok projects $1B in revenue this year and $6B next year, and its valuation is likely ~$30B
  • Videos tagged with #SaveTikTok have been viewed 730M+ times

Microsoft has a lot of experience in community. They made billions of dollars investing in Facebook, and their last three $1B+ acquisitions were Minecraft, Github, and LinkedIn. TikTok doesn’t fit into their business as neatly as the other deals, but Microsoft clearly understands how to value community engagement, so I’m excited to see how this plays out.

Btw - here’s a link to my TikTok explainer if you are still wondering why everyone is so obsessed with TikTok.

+1 🦄
Another one! Last week, Remitly announced an $85M Series F that valued the company at $1.5B, making Remitly the 38th PNW unicorn! In case you don’t know much about the company, here’s a quick summary:
  • Remitly helps people send money internationally for a small fee
  • Typically customers are immigrants who want to send money to their families in countries like Mexico, India, and the Philippines
  • Matt Oppenheimer, Remitly’s CEO, came up with the idea while working at a bank in Kenya
  • Since launching in 2011, they have served 3M+ customers in 60+ countries
  • PayU led the round (after leading a $115M Series D two years ago)

Congrats to the team at Remitly on this milestone! And exciting times for the PNW - four new unicorns (ZoomInfo, Accolade, Qumulo and Remitly) in the last two months!

Other stuff Dan's talking about
This is an "interview" with an AI pretending to be Stephen Hawking
This is an "interview" with an AI pretending to be Stephen Hawking
🤖 GPT-3 demos - Not enough people clicked this link last week, so I’m including it again. Check out these demos, and read through these “interviews” with GPT-3. Also, if you want to try it out, I think the most accessible way to access it right now is signing up for AI Dungeon
📚 High Output Founders’ Library - Amazing set of curated resources and advice for startup founders on every topic from hiring to investor relations, product, wellness, effective meetings, and more
📅 10 years in 3 months - In April, Satya said “We’ve seen two years’ worth of digital transformation in two months.” Now McKinsey is saying we’ve seen 10 years of e-commerce adoption in 3 months (and has data to back it up)
🍞 Medieval breadmaking - Fantastic blog post (from the guy who analyzed the Battle of Helm’s Deep) on medieval farming and why profit maximization and savings accounts don’t make sense for subsistence farmers

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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.
If you have thoughts, questions, or comments, hit reply! If you’re new, check out some of the DL’s top articles from the last few months:

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