Milliways Ventures Targets Technology in ‘Very Frothy’ Market
Anand Rajaraman and Venky Harinarayan, founders of Milliways Ventures.
Anand Rajaraman and Venky Harinarayan launched their last venture capital fund in 2000, just before the tech bubble burst. Now the former Amazon executives have started another fund, just as the market is showing signs of excess again.
Milliways Ventures will invest $20 million in early-stage startups developing complex, back-end technology that Rajaraman and Harinarayan hope will survive any downturn that may lurk around the corner.
“We are in a very frothy environment and it is definitely in the later stages of the cycle,” said Harinarayan. “Do we know when we move on to consolidation and clean up? No.”
The two investors plan to back startups working in areas such as big data, network data capacity, machine learning, cloud computing infrastructure and databases, avoiding consumer technology that runs on existing technology platforms.
“We can’t do anything about the market. This is why we focus on deep technology companies and invest in core technologies that persist over cycles,” Harinarayan said.
The two Stanford University computer science PhDs helped build Amazon’s successful third-party marketplace business in the late 1990s. After leaving Amazon, they launched Cambrian Ventures, which returned three times the money contributed by its investors, which included Amazon founder and CEO Jeff Bezos. That was during a time when many venture capital funds were losing money as public technology stocks slumped, IPOs dried up and startups burned through cash.
“They made concentrated bets on tech-heavy projects in interesting markets with very strong technical talent,” said Chris Moore, a partner at Redpoint Ventures, which invested in Cambrian. “They have very good noses for tech teams and the market applicability of deep tech innovations.”
Backing such startups provides some downside protection because their technology, and the employees developing it, have value even if the end product or business doesn’t work, Moore added.
“I’m not sure deep technology enables them to better survive a downturn though,” he added.
This time, Rajaraman and Harinarayan plan to back about 20 startups, investing roughly $1 million in each. It’s their own money, which means there will be no outside investors expecting returns by a certain date; however they plan to run the Milliways fund for three to five years. They have already made some early investments.
Twin Prime is working on technology that speeds up data transfer over mobile wireless networks through software that developers can include in their apps.
Robin Systems is developing a way to organize and manage clusters of computer servers to crunch huge amounts of data more efficiently.
GraphSQL is building a new type of database that can handle piles of data thrown off by social networks such as Facebook and LinkedIn.
Troo.ly is using machine learning to create a background check system for peer-to-peer sharing marketplaces such as Airbnb, so users can see if the person they are renting to is trustworthy.
Rajaraman and Harinarayan say it’s a good time for startups to raise money because valuations are high. But they are telling the founders they back not to spend a lot of the money they raise right now.
“Companies want to deploy capital during bad times. Talent is cheaper and you can build market share during that time,” Harinarayan said.
That time may be coming soon, they said. One sign of the current frothy market is the cost of renting office space. In 2000, when Rajaraman and Harinarayan rented an office for Cambrian in Mountain View, Calif., the heart of Silicon Valley, it cost $7.50 per square foot. About a year later, space in the same building was about $1 a square foot and it sat empty, according to Rajaraman. Now similar space in Mountain View is back to $7.50 a square foot, he noted.
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Originally published at blogs.wsj.com on November 26, 2014.