Before big data was a hot investing theme, Roger Ehrenberg was one of the first seed investors to focus almost exclusively on startups using data as a competitive edge. His NYC-based fund, IA Ventures, has backed companies such as Billguard, Coursekit, DataSift, Next Big Sound, Simple, ThinkNear, and Yipit. His first fund, raised in 2010, was a $50 million seed fund. Now, IA Ventures just raised $105 million to double down on data plays in Fund II.
The bigger fund will give IA Ventures the ability to make bigger bets, while still sticking to early stage deals. “I think the biggest difference is we now have the firepower to lead seeds, As and also Bs,” says Ehernberg,, “and we can take companies through the growth stage.” Up until now, IA Ventures mostly backed pre-revenue companies somewhere “between a Powerpoint and a prototype,” says Ehrenberg. Those require a lot of hands-on work to help get them to a revenue-producing stage, which IA Ventures will continue to do, but its team can only help so many companies.
With Fund II, IA Ventures will try to achieve a more balanced portfolio made up of both seed and later-stage companies already generating revenues. It is expecting to invest in about two dozen companies over the three-year life of the fund. The first investment from Fund II was the Next Big Sound’s recent $6.5 million series A, which IA Ventures led (writing a check for $4 million, it’s biggest ever).
Ehrenberg is among a new class of VCs with roots as an angel investor. He personally backed Buddy Media, bit.ly, TweetDeck, Invite Media, Clickable, and Stocktwits. In another life he was an investment banker, but he doesn’t like to talk about that now. He turned his angel investing into a real seed firm, which is now moving up the stack. Jeff Clavier’s SoftTech Ventures, which also just raised a new $55 million fund, is a similar angel-turned-VC, but with a different investing style.
In fact, there seems to be a divide between East Coast and West Coast superangels. “There is a huge ideological argument right now at play,” says Ehrenberg. Investors like Ron Conway, Dave McClure, and even Clavier make a lot of small bets—60, 100, or more per fund—hoping a few of them will pay off massively. They know that somewhere in their portfolios could be the next Google or Facebook. The East Coast seed investors are a little bit more cautious (they would say “disciplined”). Ehrenberg models IA Ventures more like a small Union Square Ventures or Foundry Capital—a more concentrated portfolio where the investors use their contacts or domain expertise to help take some of the risk out of the companies.
“The optimal point on the risk-return frontier,” says Ehrenberg, “is putting small amounts early, being close, and being in a position to put in more money when there is an opportunity to de-risk as opposed to holding a portfolio of lottery tickets and hoping that one of those lottery tickets looks like Google or Facebook.”
His limited partners seem happy with that approach. They know what they are getting and they can invest in a lucrative theme. Although, truth be told, Ehrenberg doesn’t really talk about “big data” that much anymore. “We never use it because it doesn’t mean anything,” he admits. Data is not valuable unless you do something with it. It only means something when you drill down to the specifics. IA Ventures likes to invest in companies that create contributory databases, where consumers give their data in return for something more valuable (like TC Disrupt finalist Billguard which gives you fraud protection in return for your credit card billing data); core enabling data technologies, or applications that leverage large data sets (like Simple, the new banking product still in private beta).