\n<\/p>\n
Thirteen years ago, when Chris Farmer founded early-stage venture firm SignalFire<\/a> with data analysis at the core of its investment strategy, many were skeptical about the approach \u2014 conventional wisdom dictated that nascent companies didn\u2019t have enough data to make investment algorithms effective.<\/p>\n \u201cThis was a very radical idea, and everyone thought I was crazy,\u201d Farmer (pictured above, on the right, alongside CTO and partner Ilya Kirnos) told TechCrunch.\u00a0<\/p>\n A lot has changed since SignalFire raised its first $53 million<\/a> fund 2015. Today, more venture firms are adopting data-driven strategies in addition to, or sometimes even instead of, traditional VC methods that often rely on networking.<\/p>\n Indeed, several venture firms today claim they use AI to source<\/a> deals, and we even have some private markets-focused companies<\/a> that sell analytical tools<\/a> to help all kinds of investors to do \u201cqualitative diligence.\u201d<\/p>\n Still, Farmer feels SignalFire\u2019s approach is unique because, unlike other VCs that use data, his firm integrates AI into every aspect of the investing process \u2014 from identifying promising early-stage startups to helping portfolio companies with recruiting and product marketing. <\/p>\n And its limited partners seem to agree that its investment methods will continue to hone its edge. On Monday, SignalFire said that it has secured more than $1 billion in fresh capital, bringing its total assets under management to about $3 billion. This is the firm\u2019s largest funding haul ever, exceeding the $900 million<\/a> it raised two years ago.<\/p>\n At a time when many venture firms have been forced to cut back<\/a> their fund sizes, Farmer says raising such a large fund means that SignalFire is \u201cwell out of the proof-of-concept phase and into the established manager phase.\u201d<\/p>\n The firm\u2019s new LPs include giant pension plans, insurers, banks, and an Asian sovereign, Farmer said. Indeed, CalPERS, the largest pension fund in the U.S., has reportedly committed $100 million<\/a> to SignalFire for the first time. \u00a0<\/p>\n According to Farmer, a significant reason some of the world\u2019s biggest institutional investors were excited to back his firm was its focus on seed and pre-seed startups.<\/p>\n Given their size and inherent bureaucracy, giant LPs prefer to write large checks to established firms that are expected to persist. \u201cMost seed funds are small. They have a few great funds, and then they\u2019re done,\u201d he said. \u201cIt\u2019s very hard for big institutions to back firms like that.\u201d<\/p>\n Farmer claims that with SignalFire, huge investors can get the best of both worlds: exposure to very young startups at the scale and longevity they need.<\/p>\n Although the firm\u2019s first point of entry into startups is at the pre-seed and seed stages, its model is to use its giant fund to keep investing in companies as they grow. Of course, this strategy isn\u2019t too different from most multi-stage firms, except that most of those investors tend to be more focused on initially backing companies at Series A.<\/p>\n \u201cWe use our scale to outgun everyone at the seed,\u201d Farmer said, noting that SignalFire has invested $100 million into some companies. That kind of capital is not readily available to most seed-focused firms.<\/p>\n Farmer said the firm\u2019s model has helped it identify trends before its competitors despite having few significant exits. He points to early investments in startups such as Grammarly, which was last valued at $13 billion; Grow Therapy, which last year raised an $88 million Series C from Sequoia; and EvenUp, an AI software for personal injury lawyers that\u2019s worth over $1 billion<\/a>.<\/p>\n For this new set of funds, the firm plans to continue investing in sector-specific AI startups, including\u00a0healthcare and pharma, consumer, infrastructure and developer tools, and cybersecurity. \u00a0<\/p>\n Despite its AI focus, SignalFire is deliberately avoiding companies building the foundation layer for AI models.<\/p>\n \u201cI think that many venture dollars going into model builders is at a massive risk. They\u2019re getting leapfrogged every couple of weeks by another model. You don\u2019t know whether it\u2019s defensible,\u201d he said.<\/p>\n On the contrary, SignalFire tries to invest in companies whose business model or tech can\u2019t be easily replicated.\u00a0\u201cEvenUp doesn\u2019t have a competitor. I like deep, deep, deep defensibility,\u201d Farmer said.<\/p>\n<\/div>\n