Defining Early Stage Investing

Avalon Ventures is a seed and early stage technology-focused venture fund with an emphasis on information technology and life sciences.  Quite often we are asked to define our early stage investment focus.

There is no one-size-fits-all definition of what “early stage” means to us, and it varies between information technology and life sciences. Typically, it means we are either the catalyst for starting a company or the first, and often only, institutional investor.

Early stage investing involves a few other key themes:

Thesis-Driven Investing

Being thesis-driven investors, we seek out opportunities that align with our point of view on emerging markets. We look for patterns and target waves of innovation and change that are both large and timely. Over the years, we’ve pursued a diverse set of theses ranging from digital media to Internet infrastructure, consumer services to technology and cloud-enabled services.

For example, when we first invested in Cloudant in 2008, the idea for the company had originated with three MIT physicists who, at the time, were moving multi-petabyte data sets around from the Large Hadron Collider. Frustrated by the tools available for managing and analyzing large amounts of data for their research, the founders—Adam , Alan, and Mike—built a distributed, fault-tolerant, globally scalable data layer on top of Apache CouchDB.

Their vision for Cloudant fit neatly within our thesis that cloud computing represents a major shift in computing infrastructure and increasingly will be the preferred delivery method for software and systems.

Backing and Building Early Teams

We are attracted to the company creation process where small teams of people are attacking big problems and opportunities, often in unorthodox ways. Our successful managers, from first-timers to repeat entrepreneurs, are driven, relentless, and able to recruit and retain great people.

Another one of our portfolio companies, Simulmedia, was founded by a serial entrepreneur, Dave Morgan, in 2009. Previously, he founded TACODA, an online advertising company that pioneered online behavioral marketing, and Real Media, one of the world’s first ad serving and online ad network companies. Dave has demonstrated an uncanny ability to attract and motivate highly diverse and talented teams of people, and Simulmedia is a product of online and data methodologies and lessons learned from his prior companies.

Risk Management vs. Risk Taking

We consider ourselves risk managers, not risk takers.  As early stage investors, we are willing to take on investment risk for the potential to gain a multiple of invested capital; however, we need to be convinced that there is a big idea in play and that there is something special about the company and its ability to execute.

For our life sciences portfolio, Avalon has a thirty-year history of creating companies, often reaching deep into the technical literature and research labs to find product candidates and ideas for new companies. Recently, we partnered with Glaxo Smith Kline to fund ten new companies, each built around a single drug candidate sourced by Avalon. GSK looks to Avalon to source, launch, and oversee the development of these companies, while GSK’s financial and development contributions significantly reduce the financial and development risk inherent in early stage biotech companies.

The first company launched from our collaboration with GSK is Sitari Pharmaceuticals, which is developing ways to combat celiac disease.  Sitari was sourced by Avalon and is based on intellectual property licensed from the Stanford University lab of Charles Khosla.

Over the years, Avalon has made close to 100 investments spanning many technology boom and bust cycles, and has doggedly stuck to its focus of investing in the early stages of company creation, a strategy that has helped build some great companies and consistently driven top-tier venture returns to our investors. We look forward to continuing to follow this successful strategy and backing incredible entrepreneurs and ideas.