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Monday, August 21, 2006 - Page updated at 12:00 AM

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Seadragon maintains startup atmosphere even after Microsoft acquisition

Microsoft has acquired a lot of companies since 2001, but it hardly ever plucks a promising prospect from its own backyard.

Seadragon Software is a recent exception.

The venture-funded company was toiling in a former yoga studio in Ballard when Microsoft came calling last year.

Now its technology and staff members have joined a strategically important effort to develop new Internet services.

The acquisition came perhaps sooner than Seadragon's investors would have liked.

Madrona Venture Group saw big things for Seadragon, whose technology allows users to easily organize and navigate large files, such as images.

Presentations to potential partners were going well, and investors saw the potential for multiple nonexclusive licensing agreements.

"It always had a pretty good impact on them," said Tom Alberg, managing director at Madrona. "Samsung wanted a licensing deal for cellphones."

Beginning in late summer of last year — not long after Madrona made its $2 million investment in Seadragon — Microsoft began pursuing the company, Alberg said.

Negotiations continued over a couple of months, driven in large part by Gary Flake, now the head of Microsoft's Live Labs.

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"They were very persistent," Alberg said.

The company wanted Blaise AgŁera y Arcas — a 30-year-old former Princeton researcher who founded Seadragon in 2003 — as well as other key personnel to be part of the deal.

"Blaise wanted assurances that [the technology] would be used," Alberg said.

While the price hasn't been disclosed, other terms of the transaction are evident.

Seadragon's entire team of about a dozen people has remained intact.

"We are probably the happiest startup acquisition ... perhaps in Microsoft history," AgŁera y Arcas said.

"One often hears these horror stories about companies that are exciting and then they're acquired by the huge mother ship and six months later, everybody's working on a different project."

In addition to sticking together, they got to stay on the west side of Lake Washington and complete a planned move into space on the fifth floor of the Smith Tower overlooking Pioneer Square.

That was important to AgŁera y Arcas both for the reduced commute time and the preservation of the startup-company atmosphere.

Campus crowding could have been a contributing factor as well.

"I know that space is a little bit tight in Redmond right now," said Matt Rosoff, an analyst with Directions on Microsoft in Kirkland.

"... If Microsoft really wants something, it doesn't really matter where you work as long as you're contributing."

— Benjamin J. Romano

Copyright © 2006 The Seattle Times Company

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