The news: Seattle-based venture capital firm Flying Fish landed $70 million for its second fund to invest in more early-stage machine learning and artificial intelligence startups — both in its backyard and across the country.
Why it matters: Flying Fish raised $37 million for its first fund, and is nearly doubling that for the second. It’s more capital available to tech startups based in the Pacific Northwest, though the firm is now expanding its geographic reach.
Casting a wider net: “We’ve really become known as one of those specialized funds in a very hot sector,” said Heather Redman, managing partner at Flying Fish. “We started getting a lot of inbound deal flow from other parts of the country.”
Redman said she expected Flying Fish to eventually expand beyond the Pacific Northwest but that the pandemic accelerated the timeline and “made everybody think about geography in a different way.”
The 9-person firm only made one investment outside of the region for the first fund. It has already made several investments from the second fund on the East Coast, but it will still dedicate around 70% of the fresh capital for Pacific Northwest companies. “We do still view this as the preeminent home of AI and ML,” Redman said.
Trend watch: Flying Fish is not the only Seattle firm looking elsewhere for investments. Madrona Venture Group, one of the region’s largest and oldest firms, launched an “Acceleration Fund” in 2019 to invest in companies in other regions.
Redman said the trend isn’t a sign that local investors can’t find enough deals down the street, but rather an indication of Seattle’s strength as a global tech hub and as a “great player on the world stage.”
“You are always going to want to invest in your own backyard, because that’s going to be your stronger network,” she said. “But you’re going to invest elsewhere, too, because you believe that you’re the best investor for every single founder. And I want us to start thinking about Seattle in that way.”
AI boom: Investors are betting big on artificial intelligence startups, which raised a record $66.8 billion last year, up 108% from the year-ago period, CBInsights reported.
The sector is seeing tailwinds from macroeconomic trends such as worker shortages, which drives demand for AI-powered automation, Redman said. And that may bode well for survival during a potential tech industry downturn and broader forces including inflation.
“Maybe we don’t need a new hot thing, but we do need a thing that replaces a worker that I can’t hire,” Redman said.
Flying Fish invests, on average, $2 million for seed rounds and $1 million for pre-seed rounds. It expects around 25 investments out of the new fund.
The team: Flying Fish has four managing partners, including:
- Redman, who held leadership positions at companies including Indix, Atom Entertainment, and Getty Images.
- Geoff Harris is a Microsoft vet with a background in natural language processing, machine learning, and digital commerce.
- Frank Chang also brings expertise in machine learning from companies such as Amazon, Audible, Microsoft and Reef Technologies.
- Adriane Brown, former president and COO at Intellectual Ventures, and president of Honeywell Transportation Systems. Brown is on the boards of eBay, Axon, American Airlines, and KKR & Co.