It seems that the boom times for venture capital are over. This is not just the sentiment of the media or analysts. Keep in mind that a variety of venture capitalists agree that the slowdown is real – and could last a few years.
Just look at Sequoia. On May 16, the top VC firm made a presentation to its portfolio companies entitled “Adapting to Endure.” It noted that the economy was at a “crucible moment” and founders need to be careful with cash burn rates.
Despite all this, top venture capitalists understand that some of the best opportunities come during hard times. Besides, there remain plenty of secular trends that will continue to drive growth.
One is data. There’s little argument from CEOs that this is a strategic asset. However, there needs to be effective tools to get value from data, and that will continue to drive investment in data startups for some time to come.
Here we’ll look at five of the top venture capital firms for data – along with some insight into where they see current investment opportunities.
Founded in 1983, Accel has invested in many categories over the years, like consumer, media, security, ecommerce and so on. But the firm has also shown strong data chops.
Its most iconic investment occurred in the summer of 2005. Accel agreed to invest $12.7 million in Facebook – which is now called Meta – for a 10.7% stake.
In terms of its enterprise data deals, they include companies like UiPath, Cloudera, Atlassian and Slack. As for recent investments, there is the $60 million funding of Cyera. The company has built a cloud-native data security platform that evaluates whether data – on AWS, Azure and GCP — is sensitive and vulnerable to risk. This is all done in real time.
Accel just raised a mega $4 billion fund that is focused on late-stage deals, an impressive display of confidence by the firm’s limited partners (LPs). This is certainly a contrarian bet as this category of investments has softened during the past year. But with valuations much more attractive, the timing could actually be good for Accel.
Another name with some staying power, 24-year-old Greylock Partners focuses on enterprise and consumer software companies. The investments span early seed levels to later stages. In fact, the firm will incubate some of its deals at its offices. This was the case with companies like Palo Alto Networks, Workday and Sumo Logic.
One of Greylock’s best deals was for LinkedIn. The firm invested in the startup – when it had fewer than one million members – a year after its founding in 2004.
Then in 2016, Microsoft agreed to acquire LinkedIn for $26.5 billion. Reid Hoffman, who is the cofounder of LinkedIn, is currently a partner at Greylock.
An interesting recent funding for a data startup is for Baseten. The company’s system allows for fast and easy migration of machine learning to production applications. It automates the complex backend and MLOps processes. Greylock participated in the seed and Series A financings.
Sequoia is one of the pioneers of the venture capital industry. Don Valentine founded the firm in 1972 and he raised his first fund a couple years later. It wasn’t easy, as he had to convince investors about the potential benefits of investing in startups. At the time, it was a fairly radical concept for institutions.
But Valentine had a knack for finding the next big thing. For example, he was an early investor in Atari and Apple.
This was just the beginning. Sequoia would go on to have one of the best track records in venture capital. Just some of its huge winners include Snowflake, Stripe, WhatsApp, ServiceNow, Cisco, Yahoo! and Google.
No doubt, a big part of the investment thesis for Sequoia is on data. For example, in early June the firm led a $4.5 million seed round for CloseFactor. The startup leverages sophisticated machine learning to customize sales pitches and target the right prospects. The system has shown 2-to-4 times improvements in the quality of pipelines.
It usually takes at least a decade to become an elite venture firm. The reason is that early-stage investments generally need lots of time to generate breakout returns.
But for Andreessen Horowitz, it was able to become an elite firm within a few years. Then again, it certainly helped that its founders are visionary entrepreneurs Marc Andreessen and Ben Horowitz.
Yet they also set out to disrupt the traditional model for venture capital. For example, it set out to operate like a Hollywood talent agency. Andressen Horowitz hired specialists to help entrepreneurs with many parts of their business, such as PR, sales, marketing, and design.
The formula has been a winner. Some of Andressen Horowitz’s notable investments include: Stripe, Databricks, Plaid, Figma, Tanium and GitHub. And yes, many other venture capital firms have replicated the model.
As for a recent data deal from Andreessen Horowitz, there is the $100 million Series D funding for Imply Data (the valuation came to $1.1 billion). The founders of the company are the creators of Apache Druid, which is an open source database for analytics applications. With Imply, it has focused on the large market for developers building analytics applications.
Andreessen Horowitz certainly has lots of fire power for many more deals. In January, the company announced $9 billion in new capital for venture opportunities, growth stage and biotech.
Lightspeed got its start at the depths of the dotcom bust – October 2000. But the timing would be propitious. The firm had fresh capital and the valuations were much more attractive.
In the early days, Lightspeed was focused on consumer startups. For example, it was an early investor in Snapchat. Lightspeed contributed $485,000 in the seed round.
However, during the past decade, Lightspeed has upped its game with enterprise software and infrastructure opportunities. Some of its standout deals include AppDynamics, MuleSoft, and Nutanix.
Among recent data deals for Lightspeed, Redpanda Data is one that stands out. The venture capital firm led a $50 million Series B round. Redpanda has built a streaming platform for developers. Think of it as a system of record for real-time and historical data.
In 2020, Lightspeed raised three funds for a total of $4.2 billion. The firm is now seeking about $4.5 billion for its next set of financing vehicles.