Two Sigma Ventures raises $400 million for new set of funds

Two Sigma Ventures, born out of the hedge fund by a similar name a decade ago, has raised about $320 million for its fourth early-stage venture fund and $80 million for its second opportunities fund.

Why it matters: "A lot of [limited partners] are realizing that the next three years are going to be a great time to invest in venture because there's less competition, lower valuations," says partner Colin Beirne.

• While the industry has recently warned of a challenging fundraising environment, Two Sigma lucked out in that it started talking to investors late last year and raised much of the capital before March-April of this year, adds Beirne.
• About 85% of its new fund's capital comes from outside investors.

The big picture: Two Sigma Ventures touts its AI and software chops both as what it brings to the companies it backs, and as foundational to how it filters and assesses prospective companies. It even has an internal research tool called Georges (after VC godfather Georges Doriot).

• Yes, but: In the firm's early days, its team got overly enamored with some of the fancy data science it encountered when making investments, admits Beirne.

What's next: Despite claims of "artificial intelligence" from seemingly all startups these days, partner Villi Iltchev says that very few of today's business applications are actually "smart" and provide true insights from the data they have.

• "Dropbox – it’s a dumb product," says Iltchev of the cloud file storage and sharing service. "So if you’re going to rebuild Dropbox, I would argue, make it smarter, make it do stuff for you." (Note: Iltchev was a senior employee at rival Box from 2014-2016.)
• But with the recently growing spread of AI models and open source tools, we should be seeing such applications begin to come to market, he adds.