venture capital Traditionally, it was an industry that revolved around relationships. VCs invest in startup ideas, but their beliefs come from the people behind them. This makes a lot of sense, since investing in a startup usually requires building a relationship that spans many years.
But backing companies based on founder charm doesn’t always work. In fact, investors are often tied to companies that, for one reason or another, are destined for bankruptcy. Reliance on warm referrals and networks also limits the number of startups investors consider, further alienating founders who do not have the same networks or have non-traditional backgrounds.
A growing number of venture firms are finding that the solution to cutting the noise is to incorporate data science into the deal sourcing process. Investors in other asset classes such as institutional investors, hedge funds, and public market traders are already embracing data-driven investments, so this isn’t a crazy idea per se, but so far, the venture Firms have barely entered the conversation.
We think this is one of those things that you have to start doing or be left behind. Mark Sherman, Managing Partner, Telstra Ventures
Several ventures such as Correlation Ventures, SignalFire, and Rocketship.vc have long taken this approach, and it seems likely that this number will increase.
change is in the air
This week, Austin, Texas-based VC outlet Ensemble raised $100 million to invest in early-stage startups using a data-driven approach that classifies and tracks companies based on their overall team quality and depth. announced the closing of its debut fund in the dollar.
Ensemble co-founder and managing partner Collin West, a Correlation Ventures alum, told TechCrunch that the company wants to help companies with the strongest teams, but is using data science to He said it would be difficult to keep track of without narrowing down the list.
“You can use software to track everyone in every startup, and that’s a lot more information than the human brain, especially startups, can handle,” said West. “By taking a very objective way of figuring out which companies to focus on and spending more time on fewer companies, we are effectively sorting the industry by the quality of the team.”
