<IA Ventures – the next phaseWednesday, February 8th, 2012
by Roger Ehrenberg

The facts are straight-forward. We just closed IAVS Fund II. This new fund, at just over $105 million, allows us to pursue the same investment strategy we followed in Fund I – investing in companies that create competitive advantage through data. Just like Fund I, we will continue to invest in strong founders at the Seed, Series A, and even sometimes Series B stage. As part of this fund we will reserve even more heavily for follow-on investments, continuing to view our initial investment decision as the beginning of a long and rewarding relationship.

While the facts may be straight-forward, the path to building a venture firm like IA Ventures is far more complicated and nuanced.

Over two years ago we launched IA Venture Strategies I with $17 million in initial commitments, hell-bent on executing a thematic strategy focused on Big Data. In those early days, we had the good fortune of investing in a number of fantastic companies. Building on our initial success we raised additional capital, eventually closing at $50 million in Q4 of 2010. This provided us with the resources to implement the early-stage life-cycle strategy of which we had originally conceived.  

Fast forward to late Q3 2011. We had a portfolio of 21 investments with significant reserves held for future rounds. We had led seed rounds, Series A rounds and even a Series B round. We had exercised follow-on discipline and invested as much time and capital as possible in truly disruptive companies as well as those which already had demonstrated traction. But when looking at our reserves, our portfolio companies needs, and our interest in supporting their continued growth, we concluded that we really didn’t want to make any new investments out of Fund I. We had established our hand. We liked our hand. And we simply wanted to play it. It was at this time that we decided to discuss our second fund. But how large? How many investments? What kind of investment period? What types of LPs? There were a lot of questions to answer before entering the fund-raising process.

So as a team made up of a former derivatives professional, a Ph.D in EE and Machine Learning and a data geek, what did we do? We developed a hypothesis, modeled it, tested it, subjected it to brutal peer review, iterated on it and finally arrived at an approach that felt good to each of us. 

There was much we liked about our strategy in Fund I including the number of portfolio companies and commitment to a life-cycle investment strategy. As part of Fund II we wanted to reserve more heavily for individual companies and address some of our “vintage concentration risk” concerns lurking in the back of our minds. While a two-year initial investment period for our first fund felt ok, it did not feel optimal. It felt fast. And while we believe we were fortunate in that we established positions at fair prices at a good time in the economic cycle, this is not a risk we’re happy to wear again.

Once we went through this exercise and received feedback from our Partners and mentors, we decided that $100 million was a size that achieved our objectives for this next phase of IA Ventures. We took a bit more than this because there were several amazing individuals whom we were honored to have as our partners and who can add immense value to our investment activities. It was an opportunity that we simply could not pass up.  We have a fantastic group of deeply experienced Limited Partners who measure relationships in generations, not years. It feels like family. Exactly how we wanted it to be. We have quarterly advisory board calls, and I reach out to my LP mentors in between these calls all the time. I can’t stress enough how great Partners can be assets well beyond their money, just as we strive to be perceived and treated in the same way by our portfolio companies. This kind of active management takes work by the GP. But from my perspective, my time has been incredibly well-spent.

I am so excited for what the future holds and so thankful for my IA Ventures partners and colleagues, our LPs and our portfolio companies. The responsibility of running a firm like IA Ventures is awesome, but joy of the pursuit of delivering on our promise is even greater.

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