How do great VCs thrive through crashes, hype cycles, and the AI revolution?
What lessons does a 25-year career in venture teach about founder relationships, timing, and long-term success?
In this episode of Driving Alpha, Oliver Henry interviews Matt McIlwain, Managing Director at Madrona. They cover everything from Matt’s early days navigating the dot-com bust to investing in breakout winners like Smartsheet and Apptio. Matt dives deep into his “power of why” framework for evaluating startups, Madrona’s transition from early-stage to acceleration-stage investing, and how his team helps founders think long-term—even through economic uncertainty.
Matt brings rare insight from a career spanning multiple venture cycles. His work leading investments in intelligent applications and applied AI, along with his engagement with institutions like the Allen Institute for Artificial Intelligence (AI2) and the University of Washington, offers a grounded but forward-looking take on innovation, exits, and the next wave of generational companies.
Transcript
Oliver Henry: Hi, my name is Oliver Henry from Alpha Partners, and welcome to Driving Alpha, a podcast from Alpha Partners interviewing top VCs about how they drive Alpha for their LPs, their founders, and everyone else in their ecosystem. I am delighted today to have my guest, Matt McIlwain from Madrona. He’s been in the VC industry for 25 years—a true veteran, and I can’t wait to hear his perspective on a number of topics. Matt’s investments that have reached IPO include Accolade, Apptio, Eon, Nautilus, and Smartsheet. In addition, he has a number of investments that have been acquired and truly, in terms of driving Alpha for LPs and investors and founders alike, he’s one of the noted personas in the space. Prior to Madrona, he was Vice President of Business Process at Genuine Parts Company, and before that he was at McKinsey. Matt, thanks for joining the pod.
Matt McIlwain: Oliver, thanks for having me. Really looking forward to our conversation.
Oliver Henry: Excellent. Let’s wind back the clock. You were at McKinsey and then Genuine Parts Company. How did you get into venture, and why have you stayed?
Matt McIlwain: I love to say that I got to venture capital through selling auto parts, which is partly true and not the conventional path. At McKinsey in Atlanta, we were helping transform big enterprise companies in the early days of technology differentiation. One of the areas emerging at the time, around 1994–95, was the internet. Nobody really knew how much it would change the world, but I was excited to try it out in a real-world setting. I joined a holding company called Genuine Parts—our biggest business was NAPA Auto Parts. We also had an office products business, which became the backend for dot-coms. That led me to meet a bunch of VCs, including Madrona, which had been the first investor in Amazon. In 1998–99, we explored a joint venture between Amazon, NAPA, and Madrona. Thankfully, we didn’t do it—it would’ve been a disaster. In late 1999, Madrona raised its first large outside fund and asked if I wanted to move to Seattle and join. That’s how I got into Madrona and into venture.
Oliver Henry: Excellent and quite the story. So you joined Madrona in ’99. What were those first years like, especially going through the dot-com bust?
Matt McIlwain: Very tough years. I started full-time in 2000. The Nasdaq peaked in March 2000 and dropped significantly after that. I was the B2B person, and one of my first projects involved eight B2B seafood wholesalers that had been venture backed. We merged two of them in Seattle but still couldn’t turn it into something successful. There was a lot of B2B triage. Thankfully, Madrona had enough capital and the mindset to play the long game. We continued making selective new investments—one of which was Isilon. Founded by two 26-year-old engineers from RealNetworks, they wanted to reimagine data storage. Isilon ended up being a fund-maker. We let some companies go, doubled down on others, and kept going. That served us well during a tough macro environment.
Oliver Henry: You definitely persevered—and here you are 25 years later, having just raised Fund 10, correct?
Matt McIlwain: That’s right. We now have two strategies and raised $770 million across them. One is for pre-seed to Series A—what we call “day one for the long run” investing. We want to be there from the earliest days. The other strategy we started around 2016 is for acceleration-stage investing—Series B or C, and not necessarily in the Pacific Northwest. Our early picks there included Snowflake, UiPath, and Accolade—all of which went public.
Oliver Henry: That’s quite the trifecta. Let’s talk about how you support founders. The theme here is “Driving Alpha.” How do you drive Alpha for your portfolio companies? And where do some investors go wrong?
Matt McIlwain: It’s all about partnering with curiosity. Things are always changing—technology, business operations, go-to-market. We approach each company with grounded humility and a willingness to roll up our sleeves. We’re not just investors; we’re trusted advisors. I was just on a call with a generative-native enterprise company, and we were talking about go-to-market strategy as well as next-gen AI. We discussed the Model Context Protocol from Anthropic, which is becoming a standard. That’s the level of detail we go into with founders. We have two core team members for each company, backed by the broader Madrona team.
Oliver Henry: That’s amazing. And from what I hear, founders say Madrona is incredibly hands-on.
Matt McIlwain: We try to be. But we also know the balance—you don’t want to be overly involved or giving too much advice. If we are, we either don’t trust the management team enough or we’re doing something wrong.
Oliver Henry: It’s like raising kids—you guide them early, but let them run on their own. Let’s shift to how you evaluate founders. I often refer to Bill Gross’ TED Talk where he says timing is the biggest factor for success. Do you agree?
Matt McIlwain: Bill’s done great work, and I respect it. But if I had to pick one factor, I’d pick team. Great teams adjust to timing—they pivot, they find short-term wins to earn the right to pursue their long-term vision. Strong conviction loosely held is a mindset we look for. Teams figure out their “why now”—why this is the moment their solution can outperform others.
Oliver Henry: Can you think of a team that demonstrated this?
Matt McIlwain: Apptio comes to mind. They started in 2007, right before the financial crisis. Sonny Gupta, the founder, focused on helping enterprises manage their IT spending. It became clear that IT needed to communicate better with finance and business units. They built the technology business management framework that became a standard. That loop—from curiosity to triangulation to action, and back again—was key to their success.
Oliver Henry: And what about teams with insatiable curiosity? Any examples?
Matt McIlwain: Smartsheet is a great one. Founded in 2006, it looked like a spreadsheet tool at first. But they built a powerful backend and iterated until they became a leading work collaboration platform. They didn’t hire a sales rep until 2011—they were scrappy, using SEO and SEM. The product evolved to fit the needs of complex organizations and became a $1B+ revenue business.
Oliver Henry: I want to talk about your “power of why” framework. Can you break it down?
Matt McIlwain: Sure. It’s how I listen to startup pitches. I focus on four “why” questions:
- Why: Why does this problem exist?
- Why now: Why is it urgent or solvable now?
- Why this: Why is this the right solution?
- Why us: Why are you the team to do it?
The last one is the most important—founder-market fit, authentic passion, and deep curiosity.
Oliver Henry: You’ve mentioned “curiosity as an act of humility.” I love that. So in terms of exits, what are you advising founders today?
Matt McIlwain: M&A activity is picking up. IPOs—not so much yet. Founders should focus on controlling their own destiny. Build real relationships across the ecosystem, even with competitors. When the time comes, being bought—not sold—is ideal. A good example is Isilon. They kept executing and ended up being acquired by EMC for $34 a share, after trading at $2 not long before.
Oliver Henry: That’s a fantastic story. As we wrap, what’s one life or career lesson you’d pass on?
Matt McIlwain: Time arbitrage—taking the long view. It’s tempting to focus on the short term, especially now with instant feedback loops on social media. But if you engage with challenges and think long-term, you’ll often come out stronger. That’s true for companies and for careers.
Oliver Henry: Incredible advice. Thank you, Matt, for sharing your story and wisdom. And congrats again on Fund 10.
Matt McIlwain: Thanks, Oliver. It’s been a pleasure.