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January 3, 2014

IA Ventures: Reflections on 2013

2013 was a very different kind of year for IA Ventures. While the years 2010-12 were characterized by 8-10 new investments per year, in 2013 we invested in only three new companies: Data Robot; Digital Ocean (DO) and Sight Machine (SM). Digital Ocean and Sight Machine were lead-managed investments (though we partnered with OATV and Mark Jacobsen on SM), while Data Robot was done alongside the leadership of Chris Lynch and our friends at Atlas Venture. We are extremely happy with our three new partnerships, and Digital Ocean and Sight Machine represented two of the largest initial investments we’ve ever made. They were many months (and in the case of DO, years) in the making, and reflected a depth of study, analysis and relationship development that we hadn’t undertaken previously. We have been experimenting with different modes of engagement with founders and their companies, and our activity in 2013 emerged from a series of hypotheses we’ve been testing. We will continue to test and refine these hypotheses in 2014, and we already have our first accepted Term Sheet to partner with a terrific founder and team in 2014 and beyond. While the work that went into studying the company and its space was significant, it happened in a far more compressed time frame than either of our two lead-managed investments in 2013. We are continuing to test, iterate, and evolve.

While we may not have added many new companies in 2013, we deepened existing relationships with several IA Ventures portfolio companies during the year. Our companies either signed or completed eight Series B and Series C rounds in 2013, as several of our largest Fund I investments continued their scalable growth and development. Consistent with the mission we set out in 2009, we are behaving just as one would expect a “conventional” early-stage venture firm to behave: utilizing our significant reserves to support the growth of our most rapidly-growing companies through Series A, Series B and sometimes even Series C rounds. This has been our playbook and now four years after having made our first investment, we are seeing the opportunities to participate in the expansion of our most mature companies multiply. It is certainly gratifying to see founders whom we believed in before there was a business to believe in succeeding at scale, and working towards the ultimate achievement of their missions. Having a front row seat to witness the maturation of founders into full-fledged CEOs managing dozens if not hundreds of people is truly awesome. As my friend Mark Suster correctly points out, the people-side of the venture business is often the most interesting and challenging part of our roles, and when you are as financially and spiritually invested in our companies as we are, there is great joy in watching things just work. 

Where will 2014 take us? Who knows. We, like our companies, will continue to develop hypotheses, test, refine and execute. We work very hard to express and act on independent thought separate from the frenzy that often surrounds us. While part of this is a function of my own contrarian biases, as a firm we have passions and interests that often run counter to prevailing thought. Selling a new approach to quality inspection leveraging inexpensive yet highly performant cameras and sensors into shop floors of manufacturers, wearing steel-toed boots and safety goggles? You bet. Leveraging a growing developer community to supply a less expensive, easier to use infrastructure platform with big-time hardware requirements? Yup. These are neither easy nor inexpensive businesses to build: capex requirements are quite significant. But we believe deeply that both spaces offer tremendous opportunities for well-built and well-run entrants, and that we have chosen great founders and companies in each space to express our views. This is what our LPs pay us for. We are working to identify secular opportunities that will pay off in a wide range of macroeconomic environments. Because let’s be real - who really knows what tomorrow holds? We can just think rationally, maintain focus, and stay within our areas of competency. Much more work to do, but we’re getting there.

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