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The private equity market has undergone a critical transformation in recent years. With over $1.2 trillion of dry powder in North America and new players proliferating the market, it's become increasingly difficult to identify deals that create value. Effective and comprehensive due diligence has become a prerequisite to success. Here are three tips for private equity firms to bear in mind when … ... read more

Venture Capital Relationship Intelligence

5 Best Types of Mobile Apps for VCs

By Rebecca Hinds

The venture capital industry is experiencing a renaissance. Deal sizes are rising and non-traditional investment vehicles are being introduced in droves. The biggest, most promising VC deals are slowly moving outside of Silicon Valley. And new VC players, including large pensions and family offices, are emerging. VCs are being asked to step up their game. To compete, they're adding new tools to their portfolio, in the form of software and apps.

1. Opportunity discovery apps

The most successful venture capitalists use technology to mine data from large datasets and identify the most lucrative investments. Many early-stage venture capitalists, for example, mine angel group platforms and crowdfunding sites to identify lucrative opportunities. According to a survey by Blue Future Partners and PEVCTech, the most commonly used platform among early-stage VCs for opportunity discovery is Angelist, followed by Producthunt and SeedInvest, respectively.

When it comes to mining datasets and benchmarking in order to identify promising potential portfolio companies, venture capitalists, especially mid- to late-stage ones, rely on CBInsights, MatterMark, Pitchbook, and DataFox.

2. Networking platforms

In the world of venture capital, connections and warm introductions are everything. When it comes to researching and reaching out to other investors, potential portfolio companies, or other key contacts, LinkedIn is the de-facto medium for venture capitalists. According to Blue Future Partners and PEVCTech's survey, LinkedIn is, not surprisingly, the most common channel used by early-stage venture capitalists, followed by Twitter.

Unfortunately, traditional networking platforms such as LinkedIn and Twitter have shortcomings. Specifically, they are grounded in vanity metrics, such as the number of connections or number of InMails sent. There is little insight into true relationship strength with connections. Relationship intelligence tools such as Affinity go ten steps further and help you understand your holistic relationship strength with each individual in your network. With Affinity's Alliances, you're able to search for any prospect on Affinity to understand every relevant contact your allies can provide a warm introduction to, based on their real-time relationship network.

3. CRMs

Nearly every top-tier venture capital firm relies on a CRM. CRMs help venture capitalists manage contacts, deal flow, and fundraises. Common CRMs used by venture capitalists include Salesforce, Navatar, and Sevanta Dealflow. But, because the venture capital industry is rife with intricacies and nuances, traditional CRMs have inherent flaws. They typically require a lot of expensive and time-intensive customization and experience low adoption rates. They also conceptualize people and contacts as transactions rather than relationships. People and relationships are more than mere numbers that are “assigned” to companies as traditional CRMs assume. For industries and sectors such as business development, real estate, private equity, and venture capital, where success is defined primarily by relationship strength, traditional CRM’s lack of focus on relationships is limiting. A detailed history of relationship context and strength is essential to maximizing performance. Tools like Affinity are much more intuitive and effective. They focus on building relationships, rather than moving cogs through a pipeline.

4. Document and cap table management and execution tools

No investment can be finalized without generating and executing a contract. Venture capitalists need secure and reliable document management and execution solutions. According to Blue Future Partners and PEVCTech's survey, the most commonly used platform is DocuSign, followed by HelloSign and SRS Acquiom, respectively.

In addition to document management and execution tools, venture capitalists rely heavily on cap table management tools. Cap tables are essential tools for analyzing ownership dilution and issuing employee stock options. Carta is a commonly-used platform. It is used by thousands of investors and currently manages more than $400 billion in equity. Carta includes portfolio performance dashboards that give venture capitalists insight into company performance data. Venture capitalists appreciate that Carta allows them to communicate securely with their LPs, Issue capital calls, and distribute tax documents to investors directly.

5. AI tools

The venture capital industry is replete with risk. First-time entrepreneurs succeed only 18% of the time, according to research by the Social Science Research Network study. What’s more, venture capitalists fall victim to several biases, including survivorship basis (investing in companies based on a compelling storyline, rather than the available hard data), the halo effect (investing in companies based on how similar they seem to previous investments), and information overload.

It’s not surprising that several venture capital firms have started to invest in AI tools to identify the most lucrative investment prospects. Firms such as SignalFire and Inreach Ventures have jumped on the AI bandwagon and developed algorithms to sift through the noise and identify promising prospects. Hone Capital, the VC arm of Chinese PE firm CSC Group, has created a machine-learning model using a database of more than 30,000 deals. According to an article in McKinsey Quarterly, it relies on data pulled from sources such as Crunchbase, Mattermark, and PitchBook Data and identifies 20 characteristics that are most predictive of successful seed stage companies. Ultimately, the model gives the team a recommendation for each deal they review.

Despite the enormous potential of AI, its venture capital applications still remain in their infancy. A lot of it boils down to cost. SignalFire has stated that its AI tool investment cost $10 million, while InReach has cited a cost of £1 million annually. Nonetheless, as the technology matures, it’s inevitable that AI tools will transform the venture capital landscape. Venture capitalists need to be supported by technology. As the venture capital landscape continues to experience rampant change, it's essential that venture capitalists continue to refine and step up their tech stacks.

Venture Capital Relationship Intelligence