Investor Spotlight with Matt McIlwain

Now with the unlock of not just ChatGPT, but things like Copilot or companies in our portfolio like RunwayML and Otherside that are generative app native businesses, we see a way to completely rethink and disrupt how an end user interacts with content and with transactions and with activities so that you can be more creative, more productive, more innovative.

Welcome to Founded and Funded. I'm Coral Garnick-Duncan, the digital editor here at Madrona. Today we're launching the first in our new investor spotlight miniseries, and I have the pleasure of having Madrona managing director Matt McIlwain here with me today. Welcome, Matt.

Thanks, Coral. It's great to be here.

It's fun to turn the tide on you a little bit. Usually we have you here hosting founders. Today, though, we're going to dive into what drives you and what you look for in founders. A little bit of background. So you've been with Madrona for over 20 years now and had quite the career before that working with companies like McKinsey and Genuine Parts Company, which is probably best known for the NAPA stores. Now you sit on the board of a number of our portfolio companies, and of course you were also chairman of the board of the Fred Hutch and are still on the board of advisors. And somehow you're also always so eager to help founders. So I'm curious, Where do you get your spark, that curiosity and drive to get up every morning and pour everything that you have into working with these entrepreneurs?

Well, I am super passionate about invention and innovation and disruption. And, you know, it always comes down to the people that kind of have this passionate idea, this thing that they think they can solve better than it's ever been solved before. And I think that curiosity has taken me to kind of have an empathy for the founder. You know, one of the first companies that I was ever involved with was a company I started in college, learned a ton from that experience. And then as you say, went on to work in investment banking and in management consulting and then in operating experiences. And it's not every day that somebody gets to be a venture capitalist through selling auto parts, but that's a whole other story for another day in and of itself. But even through that, you know, this was right as the internet was coming on the scene and we had this opportunity to reimagine our businesses at the Genuine Parts Company, including NAPA Auto Parts. And then we got to work with all these incredible entrepreneurs. And so what gets me excited each day is listening to, engaging with, and helping entrepreneurs build great companies.

So here at Medrona, your main interests tend to lean toward intelligent applications and biotech, or what we call intersections of innovation here at Medrona, which is where life science and data and computer science intersect. And right now, of course, everyone is talking about foundation models and generative applications. Like ChatGPT and DALL-E 2. I've heard you call generative AI the next internet in terms of the impact it will have. What are the gaps though, the opportunities that you see for founders in this space?

Maybe we take a half a step back because this has been a building thing over several decades. And when you really think about it, the internet unlocked a lot of opportunities. You had the Mosaic browser, which I think that moment that started to unlock the opportunities on the internet, which ChatGPT might be looked back on in terms of just approachable generative AI as a similar thing to the Mosaic browser. But even beyond that, when I joined Madrona in 2000, 23 years ago, this was the early, early days. Salesforce had just emerged. Concur software was transforming from being on-premise software to software as a service. And so you had this whole set of days around the innovation of software as a service that built for a number of years. Then you had the emergence in 2006, 2007 of Amazon Web Services in the cloud. And that over the last 15 years has unlocked all kinds of potential and opportunities for innovation along with mobile. It was actually 10 years ago that we started making investments in applied machine learning and artificial intelligence with companies like GraphLab that became known as Turi, companies like Algorithmia, which became part of DataRobot, companies like Exnor that that have ultimately got bought by Apple. And so seeing the potential because you had software as a service, because you had cloud and you had much more data being digitized and being able to be organized so you could actually train models. That was the magic that we think 10 years ago started to unlock AI. Now let's fast forward to today. And today we not only have machine learning models and all the kind of algorithmic approaches to innovation that have happened there, but we've got deep learning models. And in deep learning models in particular, with the emergence of technologies like BERT and other kinds of forms around large language models and attention is all you need, we started to see 4 or 5 years ago the potential in large language models plus other kinds of underlying models producing a set of generative applications that could be transformative. Now with the unlock of not just ChatGPT, but things like Copilot, companies in our portfolio like RunwayML and Otherside that are generative app native businesses, we see a way to completely rethink and disrupt how an end user interacts with content and with transactions and with activities so that you can be more creative, more productive, more innovative. We're also seeing a bunch of companies that are getting driven into being generative enhanced in their applications. So they've already got an application out there and they're leveraging large language models or leveraging the middleware that sits between them and your application to unlock enhancements to their existing software as a service. So quite a bit of opportunity. And that's why I do think that this, we're going to look back and say, wow, that whole large language model generative app moment was a lot like what we saw with software as a service or mobile, or if we go all the way back, you know, to the internet in 1995.

And you mentioned the kind of middleware tooling type layer. I mean, there's just a whole other layer of opportunity just in that by itself, kind of enabling the generative models.

There is a lot in the middleware and the tooling layer. And this gets back to a mental model framework I use all the time and listen for. And I think a lot of our team here at Madrona uses a version of this, which is the trail of whys. The first why, why does this problem exist? And you just love entrepreneurs who are so passionate about thinking deeply about a problem, why it exists, why it's maybe even gotten worse, and what can they possibly do about it. But then they also tend to know why is now a good time to solve that problem better than it's ever been solved before. And so that's the second, or why now question, the second why. The third why is why this, you know, why can this solution in this place, you know, the example we're just talking about, middleware be the better solution to the problem of people that are trying to build, in this case, generative apps leveraging one or often more ever-changing and developing foundation models. And of course, the big why in the middle of that triangle is the why us. Why is this founding team going to be the ones that are going to actually go bring that to life, bring that product to life, build that company and succeed?

And there's also the why Madrona, which you just hit on so well. I mean, the history that the investors at Madrona have in this space that transition across all of these periods is just astonishing.

Well, it's kind of you to say that. I think that Medrona's got a set of core values that we've codified in a way, but they're kind of living throughout the team, that we are incredibly passionate about these entrepreneurs. We want to build a big innovation ecosystem. We want to build a bigger pie in that innovation ecosystem, and we're much more focused on that and being confident that through that, through being early being there day one for the long run and building a bigger pie of innovation, there'll be plenty of success for Madrona specifically. And there'll be a lot of success for the founders and teams that we get to work with in building companies. That's a mindset that we've had. That was one of the things that attracted me to Madrona 23 years ago. And we have an absolutely amazing team of managing directors as well as great group of investors, partners who are kind of carrying these things forward. I mean, when I was early in venture, you weren't building community through Discord chat rooms. And that's what some of our younger investors investors are advocating and watching and doing now, let alone things like podcasts and all that just didn't exist a decade ago. So really exciting times to keep being able to reach out to and be super early in investment areas. And you know, one of our founders who sadly passed away last year, Tom Wahlberg, I mean, he would always say, look, for every Amazon, which we had the chance to invest in, there was a home grocer that didn't work out.

Is there any more you would like to add about that curiosity that you're looking for in founders? You get approached by a lot of founders, a lot of companies. What is it that jumps out to you when you're evaluating these individuals or these teams?

Well, in the end, you are trying to evaluate that why us question. Why is this founder, often founding team, the ones that so deeply care about that problem and understand that problem? Usually they've lived the problem that they're trying to solve. So if I'm trying to build a next generation generative application, You know, I've realized that there's a bunch of things in terms of how you chain things together, how you do prompt engineering today that might evolve over time, you know, how you create little agents to interact with it. And there's a problem space there. And so they deeply understand the problems and they also understand why now something could be done better to solve that problem. And I'm really listening for the problem pull orientation or the customer orientation. Versus the technology push. Yes, it's important to understand the technological trends. It's also important to understand the societal trends, and that's a part of the equation. But you really want to have somebody that has a passion for solving the problem and then work your way back to the market context and the solution that might be the best solution. You know, much of the time, the companies that we backed were directionally correct, but not specifically right when they founded the company in terms of what was going to be the product they built that solved that problem. And they had to learn their way through it through a lot of customer and market interaction.

So wrapping up here just a little bit, I have a couple quick-hit questions for you. First, what are one or two must-read books for founders? You are a very avid reader, so I'm sure that the list could get much longer, but let's just start with one or two.

Well, it's probably fitting that I pick a certain book given you asked for one or two. There's a book called Essentialism. The summary of this book, so you don't even have to read it now, but you should, is do less but better. And thinking deeply about, is this a problem that I want to solve? Is this a nonprofit that I want to commit to? Is this a priority in my life personally? You know, I have my deep passion about trying to help find durable cures for cancers. And in this case, Essentialism is a great practical book to help people really focus on those things and only those things that are 9s and 10s in their lives. And so that's really helpful as a founder. And so I encourage people to read that. The other one that's quite good is Thinking in Bets. This is Annie Duke's book, and this book is really about understanding that sometimes you can make the right decisions based on the data you have at the time. And because things are like a set of little bets, the probabilities are such that you might get to the wrong outcome. And painfully, actually, the book starts with the whole story of the Seahawks losing against the Patriots. And throwing a pass on second down right at the end in the Super Bowl. And, and you know, there's an argument to be made that that was the right decision with the wrong outcome and the importance of not doing things like resulting as in, you know, the result. And so you explain the past and it's a very well thought out book. And again, starting and building businesses, you've always gotta make decisions before you have perfect information. And they're all little bets. And, you know, to use an Amazonian phrase, it's important to think about Is this a one-way door that if I go through it, it's gonna be hard to come back out of? Or is it a two-way door kind of decision where I can go back and forth and how to think in those different kinds of bets and make decisions? So it's a really great book.

Okay. Last question for you, just a little more personal. What's your favorite thing to do when you're not working or at board meetings or helping other founders? What you do to relax?

Well, I do find staying fit relaxing. Some people don't find that to be true, but for me, whether it's Jogging or Pelotoning or skiing, all those things are incredibly relaxing. I've taken over the last several years to listening to some great podcasts on my jogs. A lot of fun doing that. I also, you know, my, my wife Carol and I and our kids, we really love to travel to see the world, to experience the world. I lived in Singapore as a boy, so travel's another thing that's really, really high on our list. And as some folks know, I am a bit of a sports fan too. My two favorite sports are soccer and football. So when I'm not getting fit, running around, being athletic. I love just watching those sports and things like the English Premier League and of course the NFL.

Well, thank you so much for joining me in this new Investor Spotlight episode of Founded and Funded, Matt. I really appreciate it.

Thanks so much for having me.