Venture capital investors are constantly on the lookout for the next up-and-coming innovator. They zero in on the highest-tech developments like NFTs, space tourism, cryptocurrency, and the metaverse, funding companies working on things so cutting edge they’re almost fantastical.
It’s ironic, then, that VCs’ tech stacks are often downright antiquated compared to the technology they’re funding. Investors with an eye toward innovation tend to be a good decade behind when it comes to the tech they themselves use to do their work. One of the most ill-suited, out-of-date platforms in a VCs’ tech stack is often their CRM. So many VC firms make scattershot use of their CRM, if they use it at all.
As a result, they lack the tools they really need to track and manage the relationships foundational to their work—even though those tools are readily available today.
What worked yesterday won’t work tomorrow
VCs’ aversion to keeping an up-to-date tech stack may date from the origin of the profession, when financial risk-takers used gut instinct, personal familiarity, and industry know-how to decide which companies to invest in. They relied more on smarts and relationships than on data or metrics. Investors who leveraged conversations and handshakes to construct deals had little need to adopt their own advancing technology.
And though the field has transformed substantially since that time, the core of VCs’ business is little different today.
A Harvard Business Review survey found that upward of 30% of VC deals result from connections to VCs’ former colleagues, 28% link back to referrals from other investors or portfolio companies, and 30% come from VCs reaching out to entrepreneurs. The common thread is connection: VCs focus on networks and relationships to generate deal flow.
“I’ve found that the best deals often come from my network of trusted investors, entrepreneurs, and professors,” Jim Breyer, founder of Breyer Capital and the first VC investor in Facebook, told HBR.
A more successful handshake
While the participation of hedge funds and the incorporation of data-driven processes have to some extent standardized the venture capital industry and presented many openings for technological enhancement, many VCs still conceive of those conversations and handshakes as the building blocks of their business.
And they’re not wrong.
But they are wrong to think that technology can’t help them improve their success in deploying those manual, human-to-human processes. The key on that front is automation and a better understanding of the people in their business network—that is, using tech tools that add value to the work VCs are already doing.
Managing relationships, not customers
An example is the traditional CRM versus a relationship intelligence platform like Affinity. When VCs began to invest in technology, the tools they invested in didn't always fit their needs. CRMs are a prime example: VCs have long neglected to use CRMs effectively because of a mismatch in the way VCs work and the way their CRMs track the work they do.
VCs know they can benefit from a system of record where they can store and update information about their contacts and relationships, and track their deal flow. But traditional CRMs track linear, transactional sales—not the kind of relationship-building that fuels successful venture capital firms.
Traditional CRMs also require a large amount of data input to act in that capacity: a VC must manually record the details of each contact or meeting. What if the VC has 12 meetings in one a single day, stretching from a breakfast confab to a conversation over late-night drinks? The choices are to take the time to enter information into the CRM in the wee hours or to wait until the next day, when time is short and memory is fading or imperfect. Or maybe the task gets pushed to the weekend… and then most likely to never.
Automate data capture, increase platform adoption, and close more deals
So VCs are missing out on updating their own technology because they’re too focused on finding the next big tech disruptor. It’s no surprise that VCs have trouble consistently maintaining CRMs to help them keep track of their relationships—they simply don’t have time. But those relationships are the lifeblood of VCs’ profession, and finding a technological solution to manage them can help VCs move faster and keep their focus on what they do best.
The alternative—a relationship management system like Affinity—resolves the workflow problem by automating a large amount of the data input required to maintain the system. And because it’s automated and easy to use, it’s likelier to get used more often, thereby remaining accurate, up-to-date, and useful enterprise-wide.
Affinity syncs with the VCs’ calendar and email to capture data about whom they’re meeting with, when, and why. It also pipes in other available third-party data about the VCs’ contacts to provide actionable data insights across markets, geographies, and funding stages.
This automation enables the platform to serve as an accurate system of record for relationships. Building on this accuracy, the platform also becomes a relationship-building engine. A VC who is about to meet with a new founder can check the system ahead of time to assess the person’s connections and learn any relevant information populated in the system.
These insights—known as relationship intelligence—that come from a team’s network, business relationships, and customer interactions built from accurate relationship data, AI-driven “relationship scores,” and external data partner datasets are the kind of data about relationships that helps you build and deepen relationships.
In an industry where conversations and handshakes are currency, strengthening the relationships in your network ultimately helps teams find, manage, and close higher-quality deals more quickly.