| Two Sigma Office (Photo credit: twosigma.com). |
It is no secret that venture capital investing sharply declined in the second half of last year. But one hedge fund firm has more or less maintained the same pace of its venture capital investment activity.
Two Sigma Ventures, the venture capital division of the hedge fund firm Two Sigma Investments, already has made four investments this year, playing the lead in two of them. In 2016 it made 10 venture capital investments, and in 2015 it made 13 new investments.
The slowdown in venture capital investing overall last year was partly due to the frenzy of activity in 2015 and 2014 and partly due to rising valuations. This big falloff in investments is also apparent among the hedge funds that have been among the more active participants in venture capital, including Tiger Global Management, Third Point, Coatue Management and Falcon Edge Capital, to name a few players.
Since Two Sigma’s venture capital business was launched five or so years ago, it has invested in about 50 companies in 100 or so different rounds. The firm declined to comment.
Two Sigma Investments is a computer-driven hedge fund firm, also called a quantitative firm or systematic firm. The firm was founded in 2001 by John Overdeck and David Siegel, who had met at quant firm D.E. Shaw.
Two Sigma views itself as much as a technology firm as it is an investment management firm. “We’re not your typical investment manager,” it emphasizes on its website. “We follow principles of technology and innovation as much as principles of investment management. Fields like machine learning and distributed computing guide us.”
It launched Two Sigma Ventures with the goal of identifying and investing in early-stage companies that are driving innovation using technologies that the firm is familiar with, such as artificial intelligence, data science, and machine learning, to name just a few, and working with these companies to add value post-investment through access to the Two Sigma network. It mostly participates in seed financing and other early round stages. In some cases, it provides real estate space for incubator companies.
Earlier this year Two Sigma Investments announced it will become the first tenant at The Bridge at Cornell Tech, which will be a new campus located on New York’s Roosevelt Island. The building will include a mix of what Cornell describes as “cutting-edge companies working alongside Cornell academic teams...hustling to commercialize a new idea, to startups on the verge of growth, and established companies developing technologies and products.
In any case, Two Sigma Ventures currently has a team of 10 people dedicated to its efforts.
However, unlike many other hedge fund firms that invest in venture capital, Two Sigma’s hedge funds do not invest their capital in these fledgling companies. Rather, the firm initially used proprietary capital, and then added some client capital in a separate closed-end fund, Two Sigma Ventures II.
In recent months Two Sigma has led the seed financing for two companies. In March it led the $4 million seed financing for Amper Music, which uses artificial intelligence to help individuals compose music.
In January Two Sigma led the $2 million seed financing for EntryPoint, which is trying to create virtual reality films. It was founded by Carissa Flocken and Ben Doyle, who previously worked for Bridgewater Associates, the world’s largest hedge fund firm, which also heavily relies on computers to make investment decisions.
In January, Two Sigma made a rare investment in a later-stage venture deal, participating in the Series E financing of Rethink Robotics, which makes robots, which it first funded in 2013.
