pic-asher.jpgCONTRIBUTED BY
Asher Bearman
asher.bearman@dlapiper.com

This week’s Venture Spotlight is Tim Porter, Investment Professional with Madrona Partners, one of the leading VC firms in the Northwest.

Tim serves on the boards of Appature, Corensic, PHP Fog, and Z2Live, and is a board observer for ApptioExtraHop NetworksImpinj, SkytapSinglepoint, and Smartsheet. Tim is also a member of the three-person Investment Committee for the Alliance of Angels Seed Fund.  For Madrona, Tim will look at new companies across all of Madrona’s investment areas but has an emphasis on the software, infrastructure, and wireless sectors.  Of late, he has been particularly interested in SaaS, cloud computing, next-generation enterprise data centers, and opportunities created by new mobile platforms. 

Tim-Porter-Large.jpgPrior to joining Madrona in 2006, Tim was a key member of Microsoft’s Corporate Development group, where he shared responsibilities for sourcing, structuring, and negotiating Microsoft’s acquisitions, strategic investments and joint ventures.  

Tim received his bachelor’s degree in Mechanical Engineering from MIT and an MBA from the Stanford Graduate School of Business.  Outside of work, Tim enjoys spending time with his wife and two young children. He is also a sports junkie and enjoys watching and playing basketball, despite having lost the step he never had.

What sorts of industries are you particularly focused on right now?

Madrona overall invests in software, internet, and wireless broadly speaking, and will look at anything interesting in the Northwest that falls into one of those categories.  Also, to a certain degree we’re geographically team-driven as opposed to specifically industry or theme driven, but we have themes too.  So, we overlay these two pieces together.  For me, I’m more focused on software and on mobile, although occasionally I will work on something more consumer-oriented or web-oriented if I have a relationship with the founding team.  But I’m spending most of my time, both sourcing and with existing investments, on business-to-business software and mobile companies.  I’d say within those areas cloud is the obvious mega-trend right now.  Yes, it’s over-hyped and over-used and abused, but there’s a real transformative trend there in how software is built, deployed, managed, priced and sold.

So how do you take those concepts that you’re interested in and apply them when you’re actually looking at companies coming in the door?

I would say, back to the point that we try to see everything that’s interesting in the Northwest, I think one thing that’s a little bit of a fallacy is that it’s really difficult to get a meeting with a VC.  I love, we love to take first meetings.  We don’t invest in a very high percentage of them; we just physically can’t, but we love to meet entrepreneurs and try to help out however we can.  I think all VCs say that, but I think we really try.  So, it’s not such a filter on what meetings we’ll take, but on the other hand when there’s a company that we meet that fits one of the themes that we’re working on, those are often where investments happen.  And then, I think also within themes that we’re interested in, you keep your ears open for things that fit.  Timing is a big part of successful investing, so the best scenarios are when we find a great team focusing on a problem that fits an investment theme we feel can be addressed right now.

But, let’s say you see five companies that are all cloud companies- if you’re going to say, ok, we’re only going to invest in one company in this space right now, what would be the defining characteristic for your ideal?

It’s hard to say, I mean, I’m laughing as I’m saying this, but the one that’s going to make the most money.  We get really focused on trying to understand the individual customer value proposition.  Whose got a value proposition that meets a real pain point that is differentiated. How big is that market and then, most importantly, is it a team that we think can go execute?  At a high level, that’s the way we’d look at it.

It seems like you guys do a lot of team-driven deals. 

I think we do, and I don’t think it’s unusual.  When you’re investing really early stage, anything can go wrong and everything is going to have to change, you just don’t know what.  That’s the classic cliché, so it’s the great team that can go figure that out, the great person.  And so that’s always a large, central part of the reason we’re investing.  But then, you’re right, I think one of the cool things about Madrona, which is in its 16th year now, is that we’ve seen a lot of people, we know a network of  people that have worked at other portfolio companies before.  People we develop long-term relationships with, people like Sunny Gupta who now we’ve backed for a third time in his company Apptio (that is killing it).  When you’ve got confidence in folks, you can get comfortable with the business plan and the idea a lot more quickly.  On the other hand, we also love to back first-time entrepreneurs.  As I think about it, for all five of the boards I’m on, we backed first time founders and in four out of five, the Company had 2 employees or less when we made the initial investment.

How did you end up getting involved in VC?  I mean, was it a conscious decision even when you were at Microsoft or did you just decide to segue and VC seemed like the right approach?

When I finished business school in ‘03 and wanted to move back to Seattle, Greg Gottesman was somebody I met with.  There was no discussion about joining a VC in 2003, it was sort of just a “lay of the land” discussion, and we talked about what cool tech companies were hiring locally.  He introduced me to a few places.  There weren’t many start-ups hiring in 2003.  I joined Microsoft and Greg and I would subsequently get together every six months or so, just stayed in touch and talked about things.  Then in 2006 Madrona had a spot open up. You have to be at the right place at the right time.  You never know when the opportunity is going to arise, and when the VC window opens you just kind of have to jump through.  So, long story short, I got lucky.

There are a lot of questions out there about the health of the VC industry.  Where do you see the Seattle VC industry going?

There has been somewhat of a thinning of the number of VC funds, largely driven by funds raised in ‘99 or 2000 that didn’t necessarily raise second funds.  You’re seeing that a little bit in Seattle, unfortunately.  I would love to see even more VCs here.  We always say we would much rather have ample capital for all entrepreneurs and take the risk of losing some deals, than having entrepreneurs feel like there’s not enough capital alternatives and need to go to Silicon Valley.  Certainly more capital would be better.  That being said, I would say the trend here of late is more of Seattle rising than Seattle waning.  The statistics around tech hiring are very strong, the bigger growth tech companies have been opening offices here, the angel community has been strengthening, TechStars has been and continues to be a major success, out-of-area VCs are back actively looking at deals, and there is an excellent group of early/mid stage companies that are growing extremely rapidly like ExtraHop Networks and Swype.  I think it’s positive overall.  And even though the region could always use more capital, I do think there are ample sources available for entrepreneurs here to get good plans funded.  So obviously we’re biased on this, but we’re very bullish on the region.

What do you think about Twitter and separately Quora?  Do you use them?

Occasional tweeter, Quora lurker. I think Quora is incredibly useful and it’s a great place to go do research on something.  I follow my companies that are mentioned, and various people and topics.  I don’t go read it everyday and just see what’s up on Quora, but when I want to learn about something, it’s one of the places I’ll go check.

So it looks like you have the new iPhone?

Yup.

What is your favorite iPhone app?

Trade Nations – it’s an addictive game that I love and, full disclosure, we’re an investor in the developer, Z2Live.  The app that I use the most across my iPhone, iPad and desktop is Evernote.

Last question – what’s your #1 tip for an entrepreneur going into a VC pitch?

Really, really focusing on customers.  I think that’s the central thing I look for through everything.  It sounds kind of obvious but when describing what you do, what the product is, make sure you are doing it from the viewpoint of how this solves an actual customer’s pain point.  If you have customers already, those are the ones I want to hear about.  What do they like?  What do they not like?  What are they solving?  If you’re pre-revenue, pre-product, which potential customers have you talked to, what have they told you?  What have you learned from that?  I think the best entrepreneurs are just maniacally customer driven and customer focused.  And it’s harder or easier depending on the business; if it’s software that you’re going to go sell to an IT department, it can be very defined.  Like, who in an organization buys that kind of software?  Who would you want to talk to?  If it’s a new consumer focused website, it can be harder to suss out, from polling consumers and the like.  But, either way, that customer focus really comes through.  So, I’d say that’s the #1 thing.