(Bloomberg)—Many Silicon Valley offices remain empty, and some venture capitalists are leaving the region altogether. In this climate, Seattle’s most prominent venture capital firm just did something unusual: It signed a lease in Palo Alto, California.
Madrona Venture Group, a fixture of the Seattle tech scene since the dot-com days, is opening its first office in California. To run it, Madrona hired Karan Mehandru, a longtime VC in the Valley.
The firm has $2.4 billion under management and got its start in 1995, about a year after Jeff Bezos moved to town and started Amazon.com Inc. For years, Madrona partners talked up the underdog status of Seattle and its ability to build enduring technology companies like Microsoft Corp. and Amazon. Madrona was an early investor in Amazon, along with other local hits including Redfin Corp. and Smartsheet Inc.
But Madrona has been branching out over the last decade or so. Now about 15% of its startups are based outside of the Pacific Northwest, among them Snowflake Inc. and UiPath Inc. The Bay Area offers a dynamic that no place else has replicated to the same degree: a network where entrepreneurs and VCs routinely run into each other and can share ideas or make introductions, said Mehandru, who ran the venture practice at Steadfast Capital before joining Madrona.
As Madrona prepares for an expansion to the south, the partners observed how the Valley’s native firms seem to be moving everywhere else. General Catalyst and Founders Fund opened Miami offices. Index Ventures is going to New York. Sequoia Capital is in London. Andreessen Horowitz is expanding to Santa Monica, California, as well as Miami and New York. (It says its headquarters is in the cloud.)
“I don’t think these other geographies are going to diminish what California has,” Mehandru said. “What that does is expand the opportunities. It doesn’t take away from what California has, which is special.”
S. Somasegar, a managing director at Madrona, said geographic diversity is valuable. “The Valley guys are finally realizing there’s a world outside the Valley,” Somasegar joked. “Now we’re expanding our horizons, too.”
Madrona saved a bundle by skipping Sand Hill Road in Menlo Park, California, home to the biggest VC firms. Asking rents for Sand Hill Road offices were an average of $163.80 per square foot last quarter, according to the real estate firm Cushman & Wakefield. That’s more than the Penn Station and Hudson Yards area of New York and about double the cost of San Francisco’s Financial District.
Still, Madrona missed the best time to sign a lease in Silicon Valley. Asking prices were generally lowest at the end of 2020, according to Cushman. The venture firm won’t say exactly what it’s paying, but asking rents last quarter in downtown Palo Alto averaged $119.40 per square foot.
Madrona isn’t immune to current tech migration trends. Recently, venture partner John Torrey moved to Texas.
To contact the author of this story: Sarah McBride in San Francisco at [email protected].
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