Daniel Li (Edition # 11)
Daniel Li (Principal at Madrona Venture Group)
We are excited about today’s Edition of The Takeoff. Today’s interview is with Daniel Li, Principal at Madrona Venture Group.
Daniel, a former consultant at BCG, is currently a Principal at Madrona, the foremost venture capital firm in the pacific northwest having invested in companies such as Amazon, UiPath, and The Riveter, among many others. Daniel is also the Founder of the Pacific Science Centre and Principal Advisor for Challenge Seattle, both working to tackle issues like education in the Seattle area.
Daniel does all this while also running his own newsletter, The DL.
The interview took place via a Zoom call between Daniel and Lukas Steinbock (Co-founder at The Takeoff) in early April.
You can find Daniel on Twitter @danielxli.
We hope you enjoy today’s Edition.
Lukas: To start, what is Madrona? What is the firm’s mission? And, how do you fit into that mission as a Principal?
Daniel: Madrona is an early stage venture capital firm based in Seattle, and our strategy is to invest in the best companies and entrepreneurs in this Pacific Northwest. That started 25 years ago, when one of our founders invested in Amazon. Since then, we've raised seven more funds to invest in early stage companies in the Pacific Northwest. For all those investments, we are typically the first institutional investor in the company. We also provide all the companies we've invested in a lot of operational support.
Lukas: How has the landscape of investing changed over your time in the Pacific Northwest? What makes this area special in your eyes?
Daniel: We have two of the three largest companies in the world. Microsoft and Amazon have really built a lot of infrastructure of the internet and technology as we see it today. I just read an article earlier today about how Microsoft Teams had 3 billion minutes used on one day (Check out the VentureBeat article, here). Not only are we building the AWS tile infrastructure with AWS and Azure, but we're also building applications that people are using to run their businesses. As someone who is leading early stage investments in the region, it is exciting to see that not only the big companies are doing really well, but also that a number of startups that have grown from one or two people in the “garage” have become multibillion dollar public companies. That's everyone from Smartsheet, Apptio, and RedFin (Madrona portfolio companies) to DocuSign, Zillow, and Expedia.
Lukas: As you mentioned in your weekly newsletter covering the Seattle and Pacific Northwest tech scene, there has been a decrease in seed rounds recently. The last three years have seen around 2,000 to 2,500 seed deals by the end of March, but this year, there have only been ~1,200 (Check out Daniel’s post, here). Do you expect this lack of activity to continue? Are you seeing similar effects on later stage deals?
Daniel: This drop in seed deals started happening in January when there is normally a big spike. In the US, there were not a lot of people paying attention to COVID at that time. Looking forward to the Chinese data on how much the deals are recovering is a crucial aspect for understanding our future. The stock market has already recovered a lot of the losses. From just those two data points, I think things are going to be a little bit better. From what you're actually hearing on the ground, though, it sounds like the pace of deals has slowed dramatically. Most investors versus entrepreneurs think this is going to last a lot longer than just a one month V shaped recovery.
One thing to keep an eye out for is what is going to happen in the Chinese VC scene because that's driving a lot of the global numbers. Then, here in the US, what you'd want to look at is how quickly the software companies recover in the public markets, because that will help the recovery for later-stage startups and will work its way down to the seed deals.
Lukas: How frequently do US venture capital firms and Chinese venture capital firms communicate?
Daniel: A lot of the largest Chinese venture capital firms actually have some sort of tie to US firms. So, Sequoia, for example, has a big presence here, in China, and globally. So, they are able to share a lot of data between their different arms. Madrona, like I mentioned earlier, totally focuses on the PNW, so we don't have any Chinese investments.
Lukas: I read that Madrona is offering support to Silver Lining, a platform connecting candidates to startups in these trying times. I think it's amazing that big players like Madrona are contributing to the ecosystem like this. Could you maybe speak a little bit about how the ecosystem has responded positively to COVID so far in the Pacific Northwest and around the country?
Daniel: Folks in Seattle have been doing a ton in this fight against COVID over the last couple of weeks. Silver Lining is one of the examples of something that Madrona has worked on. It's connecting people who've been laid off to companies that are still hiring because a lot of companies are still hiring. Another thing that we worked on at Madrona is this initiative called All in Seattle. This is a bunch of the tech leaders in the community putting together a resource for people to find on the ground non-profits who are already working on pulling funds to people in need. Another project that people have worked on recently is an app called How We Feel. Basically, you go in and you self report your symptoms, and the app allows researchers to track how the disease is spreading across the country.
Lukas: What advice have you been giving your portfolio companies to help them best navigate today’s markets and create strong businesses moving forward with everything going on in the world today?
Daniel: The first thing that we've been telling all of our companies is: Let's make sure that you're going to be around. Let's make sure that you guys have enough cash in the bank that you can get through 12 months without having to raise money right now because it's going to be tough. The second thing is just thinking about how closely this business is going to be impacted or not impacted by COVID. Obviously, there are companies that are going to get hit really hard, like companies that are focused on retail and events. But, there are other companies that are going to benefit, whether it's about workforce collaboration or it's about entertainment and gaming. Those companies are actually going to see more usage over the next couple of months as people stay at home.
Lukas: I know that some companies are adopting a model where they have people on the other side of the world working once the day is over in the US to get longer hours. Have more tech companies been adopting this model? Do you see it being adopted more in the future?
Daniel: There are more tech companies moving to remote work. Normally the idea of getting people to work 24/7 isn't the primary reason that people think about it. There are factors like getting access to the best talent and making sure that employees are happy and feel like they're being productive during the day, which are the bigger considerations. People don't just want to live in San Francisco anymore. The 24/7, having people online all the time is definitely an interesting thought and especially for certain tasks, like setting up a call center or doing different types of customer support.
Lukas: How do you stay mentally fit given the high demands of your job?
Daniel: It's going to be different for everyone. There is tactical advice saying that you should meditate for 15 minutes a day, turn off devices after 8 pm, and not use blue light on your screen. I feel like this is something where you have to learn what you need to do for yourself. For me, getting enough sleep every night is really important. I'll sacrifice other things in order to make sure that I feel well-rested and that I feel like I'm in tip-top shape. For time management, the big thing that I realized is that it's never like, I don't have time for that type of thing, it's more about what are my priorities. It’s about being clear about what's important and what do I need to get done today versus tomorrow.
** Please note that our interviews may be edited for length, content, and clarity **
I’m on Twitter @lukassteinbock 👋