Founders of the firm, which has offices in San Francisco, announced today that after investing mostly as angels in 46 data-oriented startups, they are looking to close their first institutional fund. The size is expected not to exceed $100 million.
Co-founder Matt Ocko says the motive for raising the fund was a sense that now is the optimal time for early stage investing in the analytics space. As storage capacity goes up exponentially, and costs decline, enterprises are feverishly looking for ways to eke competitive advantages from the mountains of data they’re accumulating. As for startups, the costs of launching a software business have never been lower.
“These moments in time don’t happen very often,” he says. “But when they do you get a nice 10-plus year economic transformation event.”
Data Collective will be led by managing partners Ocko and Zachary Bogue. Ocko, a former partner at VantagePoint Venture Partners and Softbank, has been active in recent years as an early stage investor in companies including Zynga, Aggregate Knowledge and BranchOut. Bogue is an angel investor and co-founder of real estate private equity fund Montara Capital Partners, a real estate private equity fund, and Founders Den, a San Francisco-based co-working space for entrepreneurs.
Beyond their own experience, partners are pitching their team of equity partners as a secret weapon. The group, all of whom are modest stakeholders in the fund, includes some 35 technical founders, executives, data scientists and engineers at prominent technology companies such as Akamai, LinkedIn, VMware, Citrix and Zynga. Their role will be assist with portfolio companies, and, in particular, to help determine which startups to fund.
Having a large technically savvy team on board is particularly critical in the big data space, Bogue says, as there are many startups with ambitious claims and relatively few people who can expertly vet them.
“They can look under the hood and see if they have the big data chops they claim they have,” he says.
Data Collective can expect plenty of competition for deal flow, as big data has proven to be a popular venture capital investment theme recently. Accel Partners, in partner, has staked a claim on the space, with its dedicated Accel Big Data Fund. Others, including Ignition Partners, Sequoia Capital and Founders Fund, have also been revving up investment.
There’s reason for enthusiasm. Big data has proven it can produce big exits and big valuations. For instance Splunk, which went public in April, is currently valued around $3 billion. Palantir Technologies, a data analytics platform provider that is still private, raised its last funding round at a reported $2.5 billion valuation.
So far, Data Collective partners have disclosed only a handful of portfolio companies. They include Kaggle, which runs competitions for predictive modeling projects, Parse, a developer of a software platform for mobile apps, and Citus Data, which makes a database for querying large datasets. Partners didn’t specify how much they’ve invested to date, but said the total is under $10 million.
As for the new fund, though fundraising for new venture firms is notoriously a tough business Ocko says he has been “pleasantly surprised” by the reception from limited partners (who he declined to name.)
He and Bogue say one reason big data holds appeal for investors is that it appears to carry smaller risks than many other sectors. That’s partly because they are largely software plays and don’t require massive infrastructure investment to scale. Another reason is that employers have trouble recruiting skilled data scientists, let alone whole teams, so startups with proven ability to innovate will likely be targets for talent acquisitions. That’s not the goal of Data Collective, which would prefer to push for big exits, but it does provide some downside protection.
It’s also easier for an acquirer to justify how a “big data” acquisition will boost earnings, Ocko notes, since an analytics company, to state the obvious, can provide plenty of analytics on how its applications can reduce expenses or increase sales.
While it’s competing with prominent VCs, Data Collective is also co-investing with them. Coinvestors in its current portfolio companies, including Accel, Mayfield, Ignition, Andreessen Horowitz and Khosla Ventures.
And while they may have a small fund, Ocko and Bogue do have a large network of connections in their chosen sector. Founders Den alone counts Foursquare co-founder Dennis Crowley, Dropbox CEO Drew Houston and California Lieutenant Governor Gavin Newsom among its high-profile list of advisors and tenants. And though its expansive open-space offices were fairly deserted late Tuesday afternoon, when I met with Ocko and Bogue, the location in San Francisco’s South of Market District is also ground zero for software and Internet startups, with everyone from analytics high-flyer Splunk to Twitter, Pinterest and Zynga a few blocks away.
But for startups hoping Data Collective might offer a faster path to an acquisition by Yahoo, Bogue, who is married to newly hired Yahoo CEO Marissa Mayer, indicated that’s probably not in the cards.
To be fair, it was a topic we dwelt on only briefly, due to a pre-interview agreement and to my general lack of skill as a business reporter in asking questions about things other than profit margins and exit multiples. However, I did ask Bogue for his take on what it’s like to be one half of Silicon Valley’s most-talked-about expectant parents.
Bogue replied that he and Mayer are “obviously super excited” about soon becoming parents and about her latest career move. However, he said, “I don’t think it has much bearing on Data Collective.” Mayer will not be directly involved in the fund, he added.
Photo of computer terminal courtesy of Reuters. Photos of Ocko and Bogue courtesy of Data Collective.DON'T MISS IT! Now in its 10th year, PartnerConnect Midwest is bringing you 300 attendees, over 400 private ExecConnect meetings between LPs and GPs, and three insightful tracks including Buyouts Funds, Buyouts Deals and Co-Investments. REGISTER TODAY!