Announcing our newest Founders’ Co-op investment: Appature

We just closed a new investment at Founders’ Co-op, and it’s an unusual one for us in several ways. For starters, it’s the first time we’ve invested alongside much larger venture capital firms – Seattle’s Ignition Partners and Madrona Venture Group led the round. In addition, the company – Appature – is much later-stage than we typically invest in: they’ve been in business since 2007 and are already operating in the black thanks to multi-year deals with customers like Johnson & Johnson. Finally, it’s a “big” financing relative to our usual deals, adding $3.5 million to the company’s balance sheet to help accelerate growth.

So why is a seed-stage fund like ours participating in a later-stage deal like this? The short answer is that we absolutely love this business and the entrepreneurs who’ve created it, and we believe the opportunity they’re chasing is big enough for us to see the same kind of return on this deal that we look for in our earlier-stage investments.

Starting with the team, co-founders Kabir Shahani and Chris Hahn met at Blue Dot, a Seattle web start-up that cycled through several angel financings and business strategies before calling it quits. Their experience there offered some powerful lessons about building and funding a business that Kabir and Chris have applied with amazing discipline at Appature. With essentially no outside financing they have built an enterprise software business targeting the world’s largest medical device manufacturers, beating out billion-dollar competitors in head-to-head vendor selection competitions. Kabir and Chris are exactly the kind of scrappy and capital-efficient entrepreneurs we love to back, and we expect them to accomplish even more amazing feats with a little more room to maneuver.

The opportunity they’re chasing is equally compelling. Broadly speaking, Appature competes in the enterprise marketing automation space, a fairly crowded market with lots of well-funded competitors. But by focusing on the unique needs of the medical market, and being disciplined about which segments of that huge and diverse vertical to attack, Appature has been able to bring the tactics and business practices of agile web software to customers accustomed to ERP-scale software deployments. The result has been a devastatingly effective combination of product-market fit, speed and value that has just begun to show its promise. And while additional growth opportunities exist beyond medical, the founders are disciplined enough not to spread themselves too thin too early, even with a venture round in the bank.

The most difficult part of this investment decision for us was the fact that our minority role will limit our participation in the day-to-day operations of the business relative to what we’re used to (and prefer) in our earlier stage deals. But Kabir and Chris made it clear to us and the other investors that they wanted our voice to be heard, to help them stay grounded in their scrappy, bootstrapping ways. Equally important, Andy and I recognize that Founders’ Co-op is part of a larger ecosystem of investors and advisors dedicated to the long-term health of Seattle’s tech startup community. Ignition and Madrona are key players in this community, and we’re excited to have a chance to work more closely with those firms on this (and other) deals.

Congrats to the Appature team on this milestone and looking forward to seeing what 2010 has in store for you (we’re betting it’s going to be a great year).