About a month ago Jay Yarow wrote about the financing of The Trade Desk. One of the commenters insisted that only Redpoint, Union Square, Highland, Sequoia or First Round Capital were expert enough to invest in online marketing firms. I think this is wrong-headed (and not just because I was one of the investors listed in Jay’s article.) But, my opinion aside, what’s the truth?
To find out, I made a list of some 150 display-ad companies by flipping through AdExchanger.com*, adding a few companies that exited early and then discarding agencies, ad networks, ad ops and rich media companies**. Of these, only those that had VC investors listed in the Crunchbase database are in the final results***. There were 90 of these.
I also split the list into five general categories: buy-side (19 companies), sell-side (20), marketplace (8), targeting (30), and measurement/verification (13). Each company was put into only one sector, unrealistic as that is.
So, what jumps out?
1. Number of Investors
There are a lot of different investors. I counted 200 institutional investors in the 90 companies.
2. Number of Investments
Most investors have one investment in the sector.
There are 154 investors with one investment, 27 with two, 12 with three and seven with more than three.
The top seven:
- First Round Capital, with 11
- Accel Partners, 9
- Union Square Ventures, 6
- IA Ventures, 5
- DFJ, 5
- SVB Financial/Silicon Valley Bank, 5
- Redpoint, 5
The firms with three investments: IVP, Rose Tech, Mohr Davidow, Menlo Ventures, DAG Ventures, Founder Collective, Venrock, Shasta Ventures, Mayfield Fund, The Founder’s Fund, Battery Ventures, Coriolis and Maples Investments.
3. Most Diversified
Many of these firms have invested in more than one of the five broad sectors.
Here’s a table of the most diversified.
|First Round Capital||✔||✔||✔||✔|
|Union Square Ventures||✔||✔||✔||✔|
|Draper Fisher Jurvetson||✔||✔||✔|
|Institutional Venture Partners||✔||✔||✔|
|Mohr Davidow Ventures||✔||✔||✔|
|SVB Financial Group||✔||✔||✔|
4. The Truth?
What makes an investor a desirable investor in a sector? Time spent on the board of similar companies certainly counts, as does number of non-competing investments in the sector and adjacent sectors.
Under these criteria, USV, First Round, IA Ventures, DFJ, Redpoint, and Accel all stand out.
But another criterion is deal flow, the number of deals an investor looks at even if they don’t invest. This sort of activity gives them a good view of the market, and a great network of potential partners. The deal flow criterion is harder to measure. My sense, from talking to entrepreneurs in New York, is that the investors who have talked to the most entrepreneurs in the sector are First Round, IA Ventures, Founder’s Collective, NYC Seed, Genacast, WGI/Point, Coriolis, True Ventures, USV, Greycroft, and Spark.
I’ve worked with or co-invested with most of these investors. I respect their opinions and, if an entrepreneur tells me that one of them is interested, it influences me. But I don’t always think they’re right. Sometimes one of them likes a company I don’t and sometimes I like a company they don’t. None of them are always right and none of them make any investment a sure thing.
Given all the uncertainty about which companies will be successful and which won’t, the predictive quality of who the investors are is too small to notice. Picking out five or six and dismissing all the others is silly. If you’re an entrepreneur, talk to as many as you can and find the one that is best for you, no matter where they work.
* I had a conversation with Greg Hills a few months ago where I asked the metaphysical question of who is quantitative marketing and who is not and he averred that the community is essentially self-defined by who are mentioned in, contribute to or comment on AdExchanger. I think this is as good a screen as any.
** Some of these should logically be included in ‘quantitative marketing’, but figuring which would take more time than I’d be willing to spend. If anyone wants to volunteer a list, feel free. Or, if anyone wants my hacked-together python scripts so they can do it themselves, let me know.
*** Crunchbase data is a bit funky. I amended it where I knew off the bat it was wrong, but didn’t dig into every investment or investor. I am sure the data in this post is incomplete.