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Investing in venture capital is a long-term game with many uncertainties. A complex industry where forecasting decisions is difficult. The role of data signals in investing is inseparable from today’s investment decisions. Multi-source data sources are increasingly used in data-driven investment strategies, which give investors a competitive edge. The future of VC points to investment intelligence.
Little has changed in the VC investment process since the asset class was formed about 80 years ago. Currently, the process is often highly manual, subjective, time-consuming, and difficult to scale.
An investment intelligence approach to venture capital
Let’s start with a simple analysis of unpacking why VC competition is increasing? The trick is to divide the market by supply (startups) and demand (capital to invest). Even though the number of startups has remained about the same, the amount of capital available has exploded. In 2009, VC funds raised $3.5 billion, but by 2019, they raised $14.8 billion (source). This can be attributed to both more funds raised, and bigger funds raised. Due to this, VC firms are investing more and more capital in fewer assets. Startup valuations rose because of this imbalance, but more importantly, venture capitalists became more creative in how they made investments.
With investors leveraging the same identification sources, sourcing will become less important as differentiation is lost. Using data-driven deal sourcing and intelligent screening, investors can find highly promising entrepreneurs, wherever they are and whenever they want.
It is true that “warm intros” can help founders meet investors, but over time, geography and “warm intros” will become less important.
Simply put, it is finding the right opportunities and investing in them, as well as helping them grow. Studies find that VCs generate about 60% of their value in the sourcing and screening stages (source). As competition increases and sourcing and screening become more important to creating value, VCs have been innovating on sourcing and screening processes to identify the most promising opportunities. This job requires data and intelligent algorithms, as in most industries.
The Data tells a clear story
With the help of team, firmographic, and opportunity datasets, we enrich the investment analysis of funds, venture capital firms, and other financial firms by offering hundreds of unique data points. DueDash has developed a 5T model to assess opportunities based on a variety of factors including team, timing, technology, traction, and market opportunity.
Having interviewed over 70+ angels, family offices and venture capitalists investing $50K plus from US, Europe and Asia, conducted 2+ years of research and built our own data-driven sourcing and diligence process, we learnt the following:
- Catch them early: Find every company as soon as possible. Where might a new company appear first? Look for trending repositories on GitHub, new products on Product Hunt, and founders’ LinkedIn descriptions like “Stealth” or “Founder in XYZ”. Check out the incorporation portal or connect with angel networks, pre-seed funds, and seed funds to learn about their investments. Expand the sourcing of deals by identifying as many companies as possible. If pre-seed and seed investors build a proper portfolio website, next-stage investors will be eternally grateful. At DueDash, we built a portfolio showcase functionality for investors and funds of any size to showcase their portfolio in their own branding with ease.
- However, to make investment decisions investors need enriched data on a company. Of course, commercial databases APIs provide some static information like sector, company description, headquarter etc. Startups, however, are private companies, which means that their information is dispersed across the web. Database companies spend a great deal of time and effort collecting, structuring, and analyzing data. Despite this, finding enriched startup information remains to be a major challenge. Due to the lack of aggregated, structured information about startups, venture funds have to undertake the heavy lifting of not only sourcing deals from a wide variety of databases, but also coordinating them and making sense of that information as different databases have their own strengths and weaknesses. To make sense of a deal more quickly, DueDash’s deal flow feature allows investors to find curated deals, search for deals beyond their thesis, and access comprehensive, structured, and accessible deal information, such as cap tables, metrics, and structured data rooms.
DueDash has already recorded $1.6 Billion plus deal flow as of the end of August 2022.
- The quality of startup deals is less important than the quantity when it comes to measuring sourcing capabilities. As data sources become a commodity, it will become increasingly hard to differentiate on sourcing alone. A smart screening process is necessary to access the most prominent opportunities for long-term differentiation. Using DueDash’s 5T model, investors can now access detailed information about startups like team, technology, market opportunity, traction, timing, additionally cap tables, key metrics, and structured data rooms. Assessment subjectivity can be reduced with the 5T model approach.
As of September 2022, DueDash has more than 1400+ investors on its investor relations platform.
- Investors must be convinced about their investment decision before closing. As part of the evaluation process, a startup undergoes due diligence. There is no doubt that risk capital is invested in entrepreneurs, but most people agree that it comes down to their teams, motivation, grit, spirit, and many other intangibles. Past success does not guarantee future results. With DueDash’s pipeline feature, investors can manage their deal flow process more effectively. Investors can now engage their entire team in tracking, evaluating, and managing investment opportunities to build collective intelligence. You can drag and drop every company through the pipeline. Keep your team updated on active companies, watchlists, and deals you are screening. On each company card, investors can see all the consolidated information about the startup. Team members can share notes, tasks, and important information. This way, investors can maximize their workflow.
- VC funds usually make most of their money from a few investments. A fund’s success depends on whether it makes at least one “home run” investment. After a series of follow-on funding rounds, a typically “fund returner” is an IPO, trade sale, or secondary share sale. The aim of our work is to make data useful for investors’ activities. By improving portfolio companies’ data fluency and capabilities, we aim to assist investors in making better decisions. DueDash’s portfolio tracking and showcase feature promotes connection, transparency, and trust. Further, startups and investors seeking follow-on financing can benefit from it.
Your investment hub
The time has come for you to begin investing based on data and rules. DueDash enables three main uses of data in venture capital decision making: sourcing, diligence, and portfolio monitoring. Data-driven investing is now possible with a simplified workflow. Get started with a free trial of DueDash and let the data work for you!
For founders who need to connect with investors and investors looking for efficient deal management, DueDash is a two-sided market platform that makes startups fundable and saves investors time and money by enabling startups to share standardized information. Unlike database services that only provide company listings, DueDash is an end-to-end solution that efficiently covers the entire process, from screening through diligence to portfolio management. Fund managers, ESOs, and founders can use data-driven investing with a simplified workflow.
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