A group of high-flying Silicon Valley investors is betting that there is room for one more program that fosters early-stage companies.
This time, they are focused on the massive amounts of information generated in part by the Internet and known collectively as "big data."
The creation of Data Elite, a hybrid between a venture fund and an incubator, underscores the obsession among the valley’s investors of finding promising companies at the very earliest stages.
Last month, regulations changed so private companies can advertise for investors, which is invigorating relatively new vehicles such as angel-investment syndicates.
Meanwhile, incubators and accelerator – programs that provide guidance and facilities to startups – are multiplying. Almost 1,400 are listed at AngelList, a high-profile site for startup companies and their backers.
It is unclear if Data, or any other group, will achieve better results than most in venture capital, a business where most funded companies fail or stumble along-and just one or two out of 10 enjoy meaningful success.
Partly to blame: the one-size-fits-all approach of many funds and incubators, said Data Elite managing director Stamos Venios in an interview.
“Generic advice – it’s not enough anymore,” he said, emphasizing that big data companies need particular expertise in areas such as storage, transfer and analytics.
Data Elite aims at a slightly later stage than most incubators and startups. The companies’ founders will need to have at least five years’ experience in their field, or proven success, such as an existing startup that sold to a bigger company, Venios said.
It plans to accept up to 10 companies in its first three-month program, starting in January. That compares to around 30 companies in recent sessions of Y Combinator, and around 50 at at 500 Startups (both are well-known accelerator programs in Silicon Valley).
Data Elite also plans to invest at least $150,000 in each company, including $50,000 for a six per cent stake and a $100,000 convertible note with terms that vary per company.
By comparison, Y Combinator used to invest $150,000 per company, via a convertible note. Last year it cut the amount to $80,000, citing falling costs to start a company. Y Combinator’s funds come from Russian investor Yuri Milner, plus venture firms Andreessen Horowitz, General Catalyst and Maverick Capital.
Declining costs are on factor behind the growing numbers of startups; the Bay area is on track for a record year in terms of the number of companies receiving the early-stage financing known as seed money, according to consultancy CB Insights.
Data Elite won’t be the first accelerator specialized in big data. Accel Partners, the firm known for its investment in Facebook as well as software-services provider Cloudera, has started two big-data funds of $100-million each.
Another group, Data Collective, has made some early-stage investments in companies such as predictive-analytics service Kaggle and big-data services company Continuuity.
As is the case at some other similar programs, advisors to Data Elite’s startups will have a financial interest in its companies. Advisors include Facebook’s head of analytics Ken Rudin, and Jeff Mangusson, manager of data science platform architecture at Netflix.
Big data has led to some top-performing initial public offerings lately, including data-analytics businesses Splunk and Tableau.
Data Elite is backed by some big Silicon Valley names. They include former Facebook executive Chamath Palihapitya’s fund, Social+Capital; Palantir founder Joe Lonsdale’s fund, Formation8; angel investor Ron Conway; former Amazon executive Anand Rajaraman; and venture firm Andreessen Horowitz.