Madrona Venture Group has raised a $250 million venture fund, the largest in the 13-year history of the Seattle venture capital firm.

The speed at which the firm raised the new cash -- less than four months -- and the commitment from existing investors -- Kauffman Foundation, University of Washington and others re-upped -- speaks to Madrona's recent success.

Over the past 18 months, five of Madrona's portfolio companies have been sold or completed initial public offerings at positive valuations. Those deals -- from Isilon Systems' December 2006 IPO to Microsoft's purchase of Farecast for $115 million in April -- have returned, on average, more than five times the capital invested.

"It never hurts to have good exits," said Madrona's Matt McIlwain when asked how the recent successes impacted the fundraising efforts. The positive results also attracted a new group of investors, including University of North Carolina, The Annie E. Casey Foundation, YMCA Retirement Fund and Oxford and Cambridge Universities.

Madrona, which got its start in 1995 as a loose confederation of Seattle angel investors, originally was looking to raise $225 million when it hit the fundraising trail in February. But demand drove the amount higher.

Even though the new fund is 50 percent larger than the previous one, partners say little will change in terms of strategy, team or focus.

After all, McIlwain said the concept is working rather well.

McIlwain

Madrona capped the fundraising at $250 million, partly because it didn't want to disrupt its regional and industry focus. Nearly all of the firm's bets are in early-stage Pacific Northwest companies operating in the consumer Internet, software, networking and wireless sectors.

At the current investment pace of about four to eight new companies each year, McIlwain said there was a "logical limit to the size of the fund."

As is the case in the venture business, not everything the firm touches turns to gold. Because of its focus on consumer Internet companies, Madrona took a beating during the dot-com bust on investments such as HomeGrocer.com, Nimble Technology and YardConnect.com.

Interestingly, however, some of the firm's recent successes -- including Farecast and World Wide Packets -- were funded during the last economic downturn. Madrona also took advantage of the uncertainty of that period to increase its stake in ShareBuilder, buying out the shares of another investor that had lost confidence. Last fall, ING purchased the online brokerage firm for $220 million.

Madrona's success lately has come through acquisitions. And while the returns have been solid, it has not scored the type of home run that venture firms typically count on.

Partners at the firm are aggressively looking for those deals. And despite the sluggishness in the IPO market, McIlwain says it is just a matter of time before they have a portfolio company that returns 10 times or more of the capital invested.

"The reality is, for any number of reasons, you can have a terrific exit for less than 10 times your capital," said McIlwain. "By and large, I think you have to make a set of judgments over time. And the harder decision is knowing when to sell in a positive scenario."

Over the past 13 years, Madrona has invested in about 75 companies. Of those, about 30 -- including AdReady, Redfin and Bag Borrow or Steal -- are still active. Another 30 have produced positive outcomes. That leaves 15 or so that were shut down or sold at a loss. McIlwain said many of those occurred in the 2000 and 2001 time period.

Despite today's challenging economic conditions, McIlwain and other partners at the firm believe there are good opportunities in the Northwest. They point to Google's growth in the Seattle area, new entrepreneurial projects spinning out of the University of Washington and the emergence of repeat entrepreneurs who have built successful businesses before.

McIlwain described the current venture market as "balanced" -- meaning there is a steady investment pace and new entrepreneurial ventures continue to be formed.

And he noted that big public technology companies -- the Microsofts, Ciscos and Intels of the world -- are sitting on $300 billion of cash. Given that the large technology companies are not growing as fast as they once did, McIlwain believes some of that cash will be used to acquire emerging startups.

Greg Gottesman, a partner at Madrona, admits that the IPO market is slow. And he said that could eventually affect mergers and acquisitions.

"We are not Pollyanna about the market," he said. "But we do believe, if you look at when great companies are formed, some of the best companies that exited in (Madrona) fund II, were companies that we invested in during the heart of the downturn. You can build good companies at an early stage even in tougher economic times."