View profile

The Golden Age of Data

The Golden Age of Data
By Keith Teare • Issue #294 • View online
Crunchbase reported that over 100 2021 unicorns reached the status by the B round. TechCrunch reported that Angel List has a fund that allocates capital using algorithms. Kyle Harrison says Venture Capital is becoming productized. Institutional Investor says that there is plenty of data on private companies. Is this is the golden age of data-driven decisions?

Content
Editorial
When I read the headline of the press release that heads up this week’s newsletter I had to click. I am a data geek. I love being able to understand an ecosystem through its data. That said, I am not data-led. I start with my experience and intuitions based on it. I form opinions. Then I look to data to support or deny my impression.
“Affinity Finds 20 VC Firms Fund Nearly Half of All Unicorns” was, therefore, a must-click for me. Sadly it was a press release. But it does point to a downloadable report. But that is a marketing document for a CRM offering called Affinity. I kept it in the curated list below as an example of how poor data on venture capital really is, and actionable data is even more sparse. For the record 10 investors are in more than half the unicorns as shown by this query from our friends at Crunchbase.
It reminded me of when Mike Arrington started collecting an Excel spreadsheet about all of the companies he covered on TechCrunch because there was no source of truth about them. Who had invested in them, and so on. Today that spreadsheet is Crunchbase. Along with Pitchbook, CB Insights, and DealRoom, it is one of the few good sources of intelligence about the venture ecosystem. Crunchbase’s Chris Metinko published an article this week showing that unicorns minded prior to the ‘C'round are on the rise.
So data intelligence (not just data) about venture capital is beginning to surface. SignalFire is a data-driven investor in startups and now manages significant funds. Angel List is a source of data about startups too and is using it to help managers make capital allocation decisions.
Natasha Mascarenhas at TechCrunch wrote an article this week about algorithmic investment and whether it is compatible with due diligence. She noted that
AngelList’s recently closed early-stage venture fund is basing all of its investments off of one key metric that AngelList has been tracking for years: a startup’s ability to hire.
She goes on the quote Clearco co-founder Michele Romanow
“We don’t believe any one signal is enough to holistically look at the success or future growth of a business. We try to look at as much data as possible, and while hiring can be one aspect, on its own, [it’s] just too subjective and open to manipulation,” Romanow said. The co-founder built a fintech unicorn that offers businesses a certain amount of non-dilutive capital based on a select few metrics. The company, formerly Clearbanc, started with growth capital for marketing expenses and recently expanded to inventory and payroll.
“Every little while, we hear more rumblings that the industry will shift to lean in this direction, but candidly, it’s hard,” she said. “It requires deep technical expertise and a product to match, so while it sounds nice on the surface, people generally revert to what they know, which is the traditional gated system with humans making decisions based on intangible factors.”
Michele’s reticence to credit data-driven approaches to capital allocation stands in contrast to the hedge fund world where quantitative analysis and indexing are key parts of strategy. Venture Capital is still a largely artisanal ecosystem. But the artisans are less and less able to present themselves as special. Kyle Harrison’s piece (below) about the productization of venture capital spells out the trend. He tells us:
we’re seeing a continued growth in the size of potential outcomes. In 2006 there was a total of 387 companies in the US generating over $1B in revenue. Across every industry, from utilities to CPG and beyond.
Now there are over 4K companies with $1B+ in revenue. Within technology we crossed the 100 company mark in 2011. 100 companies with over $1B in revenue. In 2020 there were nearly 200 companies, having added 51 companies just in the last few years. Companies like RingCentral, DocuSign, Zendesk, Twilio, and Dropbox crossed the $1B revenue mark.
The secret is out. Technology is taking over the world and we’re in the early innings. As that number of companies grows there will be more large outcomes. That will continue to attract more capital. More capital, more venture firms. And so on.
Here’s my hot take: venture capital can’t just stay a services business. Competition is already going to limit returns, both through less available allocation in the best companies and higher entry prices. Venture capital is going to have to evolve.
Venture Capital evolving is hard to believe. It really seems to stay the same. But it is evolving and it will continue to change.
By way of example, at SignalRank we have over 40,000 investment rounds into unicorns. We analyze that data to create leaderboards of Angels, Seed Funds, Venture Funds, Family Offices, and the like. We also have access to every round ever in any company. We can tell you mean time between rounds, trends in valuation and amount raised, qualitative scoring based on who invests, in sort we know what a good one looks like.
That means we have strong signals, by the A round, as to which companies are less likely to fail, and which are likely to accelerate. And we can do that globally and across or within industry sectors. This kind of data intelligence will itself become a commodity at some point, but for now it is rare.
As Machine Learning, Models and AI become pervasive across most data-rich industries, venture capital will not be left behind. More in this week’s video.
Video
The Golden Age of Data
The Golden Age of Data
The Golden Age of Data
Affinity Finds 20 VC Firms Fund Nearly Half of All Unicorns - GlobeNewswire
The Productization of Venture Capital
Is algorithmic VC investment compatible with due diligence? - TechCrunch
Busting the Myth That There’s Little Data on Private Companies
Unicorns Are Being Minted In Earlier Rounds
Unicorns Are Being Minted In Earlier Rounds Like Never Before, Valuations Skyrocket – Crunchbase News
Venture capital gains drive University’s endowment growth - Yale Daily News
Valuations Crash
Tiger Global, Alkeon Slash Startup Valuations Amid Public Stock Selloff
War in the Valley
Bolt CEO called Y Combinator and Stripe 'the Mob' in a fiery Twitter thread
Public Markets
Six global IPOs to watch in 2022
SPAC - Here Today, Gone Today
The SPAC Ship Is Sinking. Investors Want Their Money Back.
Web3 Focus
Crypto, Web3 and The Global Unleashing
Reid Hoffman | Vices and Virtues in Web3
Dollars Ex Machina
The Separation of Money and State
Strong China
State of Chinese unicorns 2021
Africa Unleashed
In Africa’s booming startup hubs, the founders have become the funders
Startup of the Week
Google Introduces a New System for Tracking Chrome Browser Users - The New York Times
Tweet of the Week
Sam Altman
After our pre-friends-and-family round in 2016, our F&F round in 2017, our angel round in 2018, our pre-seed round in 2019, our seed round in 2020, and our seed extension in 2021, we're delighted to share we’ve raised a Series A of $250 million.

Humbled by such a strong start.
OpenAI co-founder Sam Altman ridicules start-up fundraising process
This is not Silicon Valley
Did you enjoy this issue?
Become a member for $9 per month
Don’t miss out on the other issues by Keith Teare
Keith Teare

That Was The Week is a editorialized and curated weekly look at developments in tech, startups and investing

You can manage your subscription here.
If you were forwarded this newsletter and you like it, you can subscribe here.
Powered by Revue
Keith Teare, Palo Alto, California