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Bloomberg Beta raises a second $75 million fund

ICE Graveyard 19/07/2016 Matthew Lynley

When the partners at Bloomberg Beta — a $75 million seed investment fund — sit down to review how they’re doing, they say they don’t first look at the valuation of their portfolio.

Instead, they first take a look at how the founders in the fund are grading them as investors and partners. While paper valuations are always important for any firm, a key metric Bloomberg Beta focuses on is its Net Promoter Score with its founders. Using that measure of the loyalty of a customer — which can be aggressive at times — can be a good selling point to other founders, who are often referred to firms from within an existing network.

“We don’t like it as a main performance metric, it biases people toward raising more capital and fundamentally a metric about what the venture market thinks of your investments,” partner Roy Bahat said. “We’ve taken that ‘founder is your customer’ thesis as total and complete gospel.”

Now Bloomberg Beta said today that it has raised its second $75 million fund, which will basically be continuing more of the same — albeit with a little bit of a skew toward more machine intelligence startups, which the firm started tracking more closely a few years ago. The theme for Bloomberg Beta’s investments is dubbed “the future of work.” That might sound broad as a set of companies to potentially invest in, but the thesis is more built into the way Bloomberg — its sole L.P. — operates.

“The idea was, take the Bloomberg ideas and apply them to a VC fund,” Bahat said. “Have a very customer service-centric focus, build trust by being as transparent as possible, that was always the intent. The logic was, how do you describe the full range of issues Bloomberg touches. It’s basically how business is done across the board.”

In the years since launching Bloomberg Beta, which has since done more than 60 deals, machine learning and intelligence as a sector matured much faster than anyone thought it would, Bahat said. To be fair, he’s right — within just a year, there went from few investments in bot-based companies to a completely explosion of activity in the ecosystem. Bloomberg Beta, for example, was a very early investor in the bot space. The firm invested in Howdy’s initial $1.5 million seed round, which went on to be one of the Slack Fund’s first investments in its bot ecosystem.

As time progresses, companies will increasingly be built using machine intelligence from the ground up, rather than sourcing in the bits and pieces necessary to run from other companies, Bahat said. That’s why this fund in particular is going to have an increased focus on machine intelligence applied to various parts of how people work.

Here are a few of the firm’s example investments: shipping logistics firm Flexport, Codecademy, messaging developer tools Layer, and satellite image analysis startup Orbital Insight. All of these more or less drive back to the home point of augmenting the way people do their jobs — whether that’s learning how to code or interact with their customers all the way to managing and analyzing how things move in the real world.

Bloomberg Beta has also thoroughly documented the way it operates publicly on Github in a move that the firm hopes will promote transparency. At a time when there is plenty of turmoil in the venture capital market — with a flurry of down rounds and a frantic search for profitability and paper value — the theme would seem that if founders know exactly what they’re getting into, they would be more likely to select a partner like Bloomberg Beta.

Partners at Bloomberg Beta, for example, are able to give the ok for a deal and push it through. The idea there is that if the partner has spent an extensive amount of time with a founder or a company, they should probably be able to make the call as to whether or not the firm invests in them. Bloomberg Beta also extensively participates in follow-on rounds (which would be expected, given the size of the fund).

As time goes on, there will certainly be increasing competition — especially in the machine intelligence space. General Catalyst, for example, has gotten more aggressive about investing in bot companies. But with some L.P.s getting antsy about returns and valuations coming down, Bloomberg Beta has the benefit of Bloomberg’s patience to continue focusing on its core investment thesis.

“The nice thing is, we have an unusually patient L.P.,” Bahat said. “Unlike standard deals, we don’t have a specific time frame by which we need, we’re prepared to be as long term as is necessary. [Bloomberg is an] L.P. who cares a lot about the underlying technology, and this is more than just a way to allocate capital.”

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