Today, only 1% of VC firms fit the data-driven VC’s definition of a data-driven investor. This is defined by:
- The presence of at least one engineer on the team
- The development of internal tooling that uses data to improve at least one element of the deal process
But the vast majority, 84%, want to increase efforts and resources in this area. Engineering and analysis is now a core function in many funds—today you’ll find more than 250 VC and Private Equity engineering job postings on LinkedIn—something that was practically nonexistent ten years ago.
The challenge is where to begin, and whether to build from scratch or bring in tools. Ryan Bateman, CTO at Sands Capital, shared the way his firm is thinking about the challenge: “We've had many internal discussions about whether to build from scratch or bring in tools. Anything we build is likely to be surpassed within the next two years. But there's still value in this because what we build will set up our data to be structured for those next tools or projects. This will be a huge accelerator and differentiator for the firms that are taking it seriously now.”
Now is the time to get ahead by establishing strong datasets, and a focus on high impact areas like deal sourcing.
With your data needs defined, you can be proactive about sourcing datasets that cover those signals and attributes and experimenting with that data using tools that are widely available. The flexibility of building data-driven initiatives means that you can start small and then iterate on what works well.
Fifty Years
Fifty Years helps people start companies, and backs founders using technology to solve the world’s biggest problems.
Peregrine Badger, Instigator at Fifty Years, explained how taking a data-driven approach has transformed the way the firm sources deals via academic papers. He said,
A human could read papers all day and crack only a tiny fraction of what’s out there. We were already scanning Twitter for papers, so I built a tool called Paper Scraper that sources and ranks a large volume of research papers posted on Twitter. Then we pass the highest ranked papers through a ChatGPT API, and we use the tool to narrow our scope based on fundamental questions.
Badger uses ChatGPT to distill papers down to insights like what the study achieved, and what is novel about its findings.
After those questions are answered, a human scientist on Badger’s team evaluates the papers for real-world translation. "If we identify a piece of work that might have potential for real-world commercial application, we reach out to the author and ask if they’ve ever thought about starting a company."
Becoming a data-driven investor
A data-driven sourcing strategy balances your instincts and experience as an investor with insights from data that enable you to make educated decisions as fast and efficiently as possible. The first step is determining which signals matter to your thesis and why.
Take early deal evaluation. To better understand if a deal is a good fit, signals like current full time employee (FTE) headcount, headcount growth, revenue growth rate, funding stage, and founder background are crucial.
When revisiting opportunities that were previously researched but put on hold, the relevant signals will differ. In this case, information around leadership departures and hires, headcount trends, and changes in total addressable market (TAM) will matter more.
These data points can be grouped as traditional company inflection points. There are then a variety of off-the-shelf data vendors that unlock more signals specific to a firm’s area of interest, things like website traffic and app downloads. Discussing how her firm approaches deal sourcing, Amber Quinones, Head of Platform at BBG Ventures explained,
We use nine years’ worth of data to understand what makes a strong founder.
At minimum, you should be able to view and analyze these insights in one place. From there, you can identify patterns and bring in signals from less traditional sources that will help to strengthen the quality of the opportunities you source.
Affinity lives at the heart of the data-driven VC’s tech stack
Our automatic data capture ensures your CRM data is complete and up to date without the need for manual data entry. This saves more than 200 hours per dealmaker each year, time that can be reallocated to sourcing high quality deals.
Enriched data in Affinity provides additional insights at your fingertips, with organizational data like funding, firmographic and growth data; or people data like biographic and experience data included within CRM records to make data-driven decisions faster.
Our extensions unlock the ability for you to capture insights in the flow of work, and access enriched data about companies outside of your network from anywhere—such as when reading a referral email or visiting a prospect’s website.
And finally, you can use our API to centralize all of your data in one place, either by pulling Affinity's relationship insights into other tools or pulling data from other tools into Affinity.
.webp)
Many of the strongest performing startups are choosing to wait and see what the market does before raising their next round, and there has been a marked increase in those cutting costs to extend runways.
Those unable to raise or IPO may be looking for a faster exit, either through M&A or the fire sale that reportedly began in France in September 2023. Strong relationships with founders, as well as other players in private capital markets, are critical if dealmakers want to be ready for all types of exits.
Staying top of mind for these opportunities—however they present themselves—means dealmakers need to invest in the relationships in their network over a longer period of time
01 Advisors
01 Advisors is a venture and advisory firm that helps founders go from building a product to building a company.
Lacey Behrens, Partner at 01 Advisors, described how the firm puts long-term relationships at the heart of their business strategy. She said,
[Having a strong] network is huge.It's one of our biggest competitive advantages. We actively engage our entire ecosystem at all times to build and nurture meaningful connections.
The firm uses Affinity to manage their network and source deals: “We build trusted relationships with our VC partners and our co-investors, meeting new investors, tapping into exclusive opportunities and deals, and for portfolio sharing we utilize an Affinity list to really manage the way that works—cadences, firms that we want to touch and thank for relationships, intelligence.”
Behrens continued, “We get all of that data really quickly and identify who we haven't spoken with in a while. Our investment team does pre-work so that every Partner is going into a meeting with companies they can ask about. This is the top of our funnel.”
Using your network to fuel deal flow
Firms that can understand their team’s entire network at a glance are better able to source deals via relationships. With communication data automatically pulled in, relationship intelligence provides up-to-date insight into the strength of every relationship within a collective network.
This level of visibility uncovers warm paths of introduction that would otherwise have been obscured, making that initial meeting easier to book.
Relationship intelligence also helps firms understand their most valuable relationships. Have a founder or fellow investor who has helped source valuable deals in the past? Use this insight to actively nurture them with the help of automated follow-up reminders and areal-time relationship strength score.
Improve deal flow by 25% with relationship intelligence
Our relationship intelligence is automatically generated by AI-driven algorithms that analyze your firm’s relationship data to provide warm introduction paths. This gives you more time—and higher quality insights—to focus on opportunities that fit your firm’s investment thesis, and close those deals faster.
For deals that develop over time, automated reminders and triggers make it easy to act on relationship strength changes and maintain your most valuable connections for when new deal opportunities arise.
With an exhaustive list of your firm’s shared relationships, you can improve deal flow by up to 25%.
.webp)
There has been a huge rise in the number of VC funds over the past decade as investors have sought to get a piece of the pie from an asset class with historically high returns. Reporting on this, PitchBook identified a tripling in the number of firms actively investing.
This increase in competition means that, more than ever, firms need to optimize for efficiency in order to find high quality deals and avoid the pain of missing a deal to a competitor.
The best deals will sit untouched for too long if dealmakers are stuck wasting time on manual research and data entry. Or they can be completely overlooked due to inefficient processes, human error, bad/missing data, or a lack of visibility into the firm’s collective deal flow.
Dealmakers need a system of record that doesn’t rely on manual data entry—and solutions that live within the tools they use everyday: meetings, email, and their browser.
8VC
8VC focuses on investing in companies across critical industries including healthcare, logistics, fintech, and enterprise software.
Caroline Haun, Operations Director at 8VC, has been instrumental in building technology-driven workflows that improve the firm’s efficiency. She said, “When you’re able to answer questions for yourself via Affinity without bugging somebody, that's powerful."
The team now has visibility into who is working on what and can move faster on deals that fit the firm’s thesis. Haun explained,
Being able to have multiple views of the same list, and cut and save the same list in different ways for different individuals and purposes, has been hugely helpful, instead of having to update the same thing in multiple places.
Affinity’s extensions have also accelerated deal sourcing for 8VC’s dealmakers. Haun described how fast it can be to source a warm introduction to a new deal, saying: “We've started to use Affinity Pathfinder on websites and LinkedIn, and it’s very valuable. It's easy for somebody to go to a website and see who we know without having to go to Affinity and look it up."
Technology that supports seamless dealmaking
Collaboration requires a shared source of highly accurate information. When deal insights are automatically pulled from email and calendar data, teams have the context to move quickly and in the same direction. Regardless of who reaches out to prospects or other connections, firms always put the best foot forward.
The next level is to have data available in the tools dealmakers use every day. This helps them make educated decisions faster without disrupting their workflow. And means they can reach out with more personalization and relevance.
The power of extensions
Affinity Pathfinder, our extension for Chrome and Gmail, dramatically reduces the time it takes to find the right deal with relationship intelligence, business insights, and a connection to your CRM as you research and engage prospects. With features like one-click updates to deals, there’s no need to make changes to your current process, or to constantly switch back and forth between tools to get value out of the CRM.