The fund focuses on the collision of healthcare and technologyRead more...
Ehrenberg is the former CEO of DB Advisors, and an angel investor who seeded 40 companies
There has been a big debate over the last few years over whether the Series A crunch is real or not.
What everyone can agree on, though, is that there are definitely more seed and early stage funds now than ever before, and more people willing to give money to young companies looking to make it big.
But just who are these funds and venture capitalists that run them? What kinds of investments do they like making, and how do they see themselves in the VC landscape?
We're highlighting key members of the community to find out.
Roger Ehrenberg is the founder and Managing Partner of IA Ventures.
Prior to forming IA Ventures, Ehrenberg was an active angel investor through IA Capital Partners, a seed-stage investment firm focused on digital media, advertising technology and financial technology. From 2004 to 2009, he seeded 40 companies, including Buddy Media, Invite Media, Magnetic, Ticketfly, TheLadders, TubeMogul, and TweetDeck.
Earlier in his career, Ehrenberg served as President and CEO of DB Advisors, Deutsche Bank’s internal hedge fund trading platform. Before DB Advisors, Roger was Global Co-head of Deutsche Bank’s Strategic Equity Transactions Group. As an Investment Banker and Managing Director at Citibank, Roger held a variety of roles in the Capital Structuring, Derivatives and Mergers & Acquisitions Divisions.
He holds an MBA in Finance, Accounting and Management from Columbia Business School and a BBA in Finance, Economics and Organizational Psychology from the University of Michigan.
VatorNews: What do you like to invest in? What are your categories of interest?
Roger Ehrenberg: My partners and I have our own distinct interests, and those vary over time. We are vertically agnostic, with investments ranging from alternative finance to healthcare, from predictive analytics to security, to applications of machine learning and education. We looked at companies in healthcare for almost four years before making an investment, and how have made four very different investments in the space. So it evolves.
My partner Jesse Beyroutey has made several investments in healthcare and financial services, and my partner Brad Gillespie has built a portfolio spanning healthcare, infrastructure, machine learning and security. First and foremost, it comes down to the following: do founders have the secret to the development of multi-billion market?
At present I'm into alternative finance, predictive analytics, and data services. With alternative finance, that’s partly because my roots are on Wall Street and I have very specific insights into how “Big Finance” can be disaggregated and disrupted. The advent of distributed storage and compute, and the ability to develop scale infrastructure very inexpensively, opened up every segment of finance for potential disruption.
VN: What would you say are the top investments you have been a part of? What stood out about those investments in particular?
RE: An angel investment where I was one of the original investors was Buddy Media, which sold to Salesforce for $800 million. Buddy had a few characteristics that are pretty common among the investments I have made. There was a visionary founder in Michael Lazerow, with a very clear hypothesis about a huge market opportunity that others hadn't perceived. His secret insight was that Facebook was going to be huge, really huge, and that brands were going to need to figure out how to build and leverage their presence across social media. At the time Mike developed this hypothesis in 2007, Facebook had 20 million users. By the time it sold Facebook had more than 800 million users and brands were spending billions of dollars attracting, speaking to and engaging with customers.
Mike and the Buddy Media team were on the leading edge of this wave, helping agencies and their customers take advantage of this phenomenon. I was fortunate to have a front-row seat to watch this amazing team pursue a vision that was spot on, well-timed and beautifully executed.
Around the same time I made a significant angel investment in Ticketfly, which recently sold to Pandora for $450 million. The company had a founding team that had previously sold TicketWeb to Ticketmaster, so they saw what it was like to be a nimble, fast growing startup engulfed by a much larger, highly profitable organization where there wasn't pressure to innovate. That insight, together with the fallout of the Ticketmaster/Live Nation merger, caused tremendous chaos in the market: Andrew Dreskin, and his co-founder, Dan Teree, stepped into that vacuum to develop a ticketing and event management solution geared toward concert venues, one that was both cheaper and possessing much richer functionality than legacy offerings. And the fact that these services were being delivered by a scrappy, flexible, fast moving start up was viewed positively by customers afraid of depending on a single dominant player.
Pandora has done a good job preserving its startup culture, maintaining their innovative edge while being a multi-billion dollar public enterprise. Ticketmaster had a quasi-monopoly, so it was ripe for disruption. Pandora has been forced to adapt because of stiff competition from the likes of Spotify and SoundCloud and the explosion of streaming music. Even the legacy satellite music leader SiriusXM is a competitor.
One of earliest investments we made at IA Ventures is The Trade Desk, the fastest growing demand-side platform in the world. The Trade Desk was also born of a founder, Jeff Green, who had gone through an acquisition, similar to Ticketfly, to a much larger player. Microsoft bought Jeff's previous company, AdECN, one of the first real time bidding platforms, back in the mid 2000s.
Jeff wasn't able to fulfill his original vision as part of Microsoft so he started The Trade Desk in late 2009, and it is now a global leader in the programmatic advertising space. Jeff’s secret was recognizing the tectonic shifts brought by programmatic buying and the convergence of the financial markets and the advertising markets. This strongly resonated with me in light of my own similar philosophy, starting in my angel days back in 2007. I was also an early investor in Invite Media, which was bought by Google, as well as a leading video DSP called TubeMogul which is now a public company.
The last company I'll mention is TransferWise, which is a P2P money transfer company that was started by two Estonian friends to solve their own problem, the high cost of bank wires from converting Euro into Sterling. It has now grown into a global organization with hundreds of employees handling billions of dollars in transfers a year.
It was a company that decided to compete in an extremely crowded and competitive space. Their secret was that users of bank wires didn’t understand exactly how much they were losing due to hidden fees, and that by offering a product highlighting price transparency and fairness they could take significant share from incumbent players. Ultimately they came up with a product that was literally 10 times better than the alternative, the bank wire. TransferWise has developed a mobile optimized foreign exchange solution that is fast, fair and transparent, and provides a wonderful customer experience. They had insight into huge profit margins being captured by the bank incumbents, and capitalized on this opportunity by radically improving the product offering.
VN: What do you look for in companies that you put money in? What are the most important qualities?
RE: Is the market large and compelling? Do the founders have secrets that will enable them to become the dominant player in the market? Are there attractive unit economics at scale? Do I have shared passion for the founders’ mission? And do the founders want to be bold and take the risks necessary to create a leadership position in their chosen markets?
Another important aspect is having personal chemistry with the founders. Given the fact that we are investing so early, so much is not known except that it will not be a linear path to success. There will be many struggles to be successful, and given that we assume it will be an eight to 10 year journey, we have to like working with each other.
Lastly, we love founders who are driven to run experiments. When I think of the journey to achieve product/market fit, it is largely a series of experiments with an iterative development cycle driven by data. Great founders are running experiments that are well designed, capturing rapid and valuable feedback and iterating. It takes a certain mindset that is not commonly held. The journey of product development, distribution, engagement and back can be fueled, insights gleaned and improvements made by leveraging data.
VN: What kind of traction do you look for in your startups? And can you be specific? Are you looking for a number of customers or order volume?
RE: Because we are investing pre-Series A, our companies exhibit wide-ranging traction depending on their age and area of focus. We’ve made many investments in companies that hadn’t earned their first dollar of revenue, while others have generated hundreds of thousands in sales by the time we made our initial investment. The character of the revenue also matters, as some early revenue often isn’t “good” revenue as it’s largely services bridging the gap until the scalable software solution can be built and deployed. So a discussion of traction without context isn’t very meaningful.
VN: Tell me a bit about your background. Where did you go to school? What led you to the venture capital world?
RE: I took a very nontraditional path to venture. I was on Wall Street for 18 years, and I can honestly say that being a venture capitalist had never occurred to me.
When I left Wall Street in 2004 I didn't have a clear sense of what I wanted to do next. I had made a few angel investments while I was still at Deutsche Bank, and had the insight that small, technically oriented startup teams felt a lot like the teams I built in derivatives and trading. Shortly thereafter I started angel investing but doing it as a serious, full time job. I created an investment vehicle, IA Capital, to serve as my single LP fund. In order to build a brand and reputation and to network across the entrepreneur and venture communities I took five meetings a day, five days a week for five years to run my own experiment. I invested a significant amount of my own money over this time period and seeded 40 companies, leading six rounds personally. By the middle of 2009, I had proven to myself that I was pretty good at identifying and investing in seed stage technology companies, and that I had a deep passion for working with the founders of nascent enterprises to help build their businesses. I had codified the notion of Big Data as an investable theme back in 2009, and used this vision, branding and market positioning to launch IA Ventures in late 2009.
VN: What do you like best about being a VC? What makes you excited?
RE: I love working with founders and the breadth of visions and missions I am exposed to every day. The richness of the problems that my companies are trying to solve and the incredibly broad backgrounds of the founders I work with means that there is always something new and that I’m always learning and growing. I will never feel that I’ve “figured out” seed stage venture investing, so it remains a constant learning experience that is forever challenging.
VN: What is the size of your current fund?
RE: This summer we closed IA Ventures Fund III at $160 million.
VN: What is the investment range? How much do you put into each startup?
RE: Our initial investment is generally in the $1 million to $3 million range. We hold significant reserves against our positions for subsequent rounds.
VN: Is there a typical ownership percentage you are shooting for?
RE: We generally own between 12 percent and 20 percent with the first investment, and ultimately own 15 percent to 17 percent after three to four rounds of financing.
VN: Where is the firm currently in the investing cycle of its current fund?
RE: We have yet to make our first investment out of our new fund. We just invested in our final two companies out of Fund II, so now we're turning towards making our early investments in Fund III.
VN: What percentage of your fund is set aside for follow-on capital?
RE: We take a bottoms-up approach, but our ratio of initial investment to follow on investment is somewhere around 1:3 when recycling is taken into account.
VN: What series do you typically invest in? Are they typically Seed or Post Seed or Series A?
RE: We have historically initiated our investments before Series A, between incubation and seed extension. That's where we live, with an eye toward working closely with founders on how to raise a great Series A round. We are generally the first institutional lead in a company, and align with founders around what needs to be proven over the next 12-18 months post-financing to make the Series A round a success.
VN: In a typical year how many startups do you invest in?
RE: On average between four and eight. We will do 20 to 25 total investments out of Fund III.
VN: Is there anything else you think I should know about you or the firm?
RE: We have a very tight partnership with Brad, Jesse and me. We have no junior people and we each do our own work. But even though we manage own investments, we have a tremendous amount of cross fertilization and peer review. I learn so much from Brad and Jesse every day, and they have made me a better investor and Board member. Given our small size and ethos we take an artisanal view of venture investing, building a concentrated portfolio for the long haul with deep founder engagement. And with $160 million to deploy in seed stage companies, we have the resources to take concentrated risks and to be patient towards the goal of building large, scalable enterprises that deliver substantive benefits for their customers.
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