InReach Ventures, the so-called "AI-powered" venture capital firm based in London, announces the first completion of a new € 53 million fund targeting European technology companies in the early stages, thereby replacing the original fund objective of 50 euros surpasses millions, apparently.
Founded by former Balderton Capital-General Partner Roberto Bonanzinga, along with Ben Smith (former UK design director at Yammer) and John Mesrie (former general counsel at Balderton Capital), InReach has begun helping with the deployment of technology in 2015 VC scaling, especially in Europe's idiosyncratic and highly fragmented market.
The company's proprietary, software-based approach, underpinned by machine learning, claims to be able to more efficiently generate and evaluate the flow of transactions than traditional venture companies, which mostly do only employ human VCs ̵
InReach, however, seems certain to place the money there, investing more than € 3 million in the development of its software, code-named "DIG". To support this, Bonanzinga says the company employs "more software engineers than investors". (I saw an early demo of the software a couple of years ago, and even then it seemed legitimate.)
As far as the new fund is concerned, Bonanzinga says InReach is targeting the most promising and innovative startups in Europe, especially in Consumer Internet, software as a service and marketplaces. "We are geographically agnostic and will invest in companies across Europe, from Helsinki to Barcelona, from Warsaw to Rome," he says. "In most cases we will be the first institutional investors and our first exams will be between € 500,000 and € 2 million."
To date, InReach Ventures has invested in eight startups across Europe. These include Oberlo (Lithuania), later acquired by Shopify, Soldo (Italy / UK), Tutorful (UK), Shapr3D (Hungary), Traitly (Sweden) and Loot (Germany).
Below is an easy-to-edit question and answer with Bonanzinga about the new fund, how to use AI to scale venture capital, and why VCs are not about to be pulled out of the job soon.
TC: You've often said venture capital does not do that It's not particularly big, especially in a fragmented market like Europe, but what do you mean?
RB: People are very excited about ecosystems, but the data shows startups can come from anywhere; the big technology hubs or more remote locations. This will be Europe's largest stock: from Betfair in London to Zalando in Berlin, from Supercell and Spotify in the Nordic countries to Critio in France and Yoox in Italy and so on. Deal sourcing is not only fragmented across Europe, but also returns.
Traditional venture companies have attempted to manage this fragmentation by alerting people to the problem, but if you want real coverage, you must be present in every city in Europe. So you need to think about our technology platform as if you have a highly skilled employee in every city and city across Europe who offers a structured, diligent deal flow. With this data- and technology-driven approach, we can be the first institutional investor on the tabletop to truly be Europe-wide.
TC: Many VCs claim they use technology to help find or manage deal flow, how is InReach different?
RB: Many venture companies talk about data and software. Lately it has become a hot topic in pitches for limited partners. I predict a new hype: the rush to activate the "We have a data strategy" box. We will have many companies with over 30 investment professionals and one data engineer in one corner. The real question is how many companies are willing to turn their professional service DNA into product DNA. As always, this is more a personal / organizational issue than a matter of using technology.
Take a look at InReach, we are a very atypical founding team for a venture company. In particular, Ben Smith has a background in software engineering and has built many data platforms and product development teams (most recently at Yammer / Microsoft). The majority of InReach employees are software engineers. This is the only venture company we know where there are more software engineers than investors! So far, we have invested over three million euros in the development of our proprietary technology platform.
TC: Without giving away your secret sauce, how does the InReach platform work, both in terms of the machine learning / feedback loop and the signals / data you plug in it?
RB: From a technological point of view, our logical architecture is mainly based on three different levels: data, intelligence, and workflow. The data layer is a mix of massive data aggregation with extensive data enhancements, including the generation of a large amount of original data. The intelligence layer makes these millions of data points understandable through an ensemble of machine learning algorithms whose complexity ranges from simple rules to advanced networks. With this data-driven approach and the associated significant deal flow, we're investing heavily in building a workflow product that enables us to efficiently handle thousands of businesses every month.
TC: They say the final investment decision is still made by humans: why is that so and do you think that this will always be the case?
RB: As with any AI company, it's all about data. We spent the last three years collecting data from the entire Internet and creating algorithms to enable a significant deal flow. More importantly, we've collected and generated our own proprietary investment decision data and how these startups grow and adapt over time. Of course this only gets more powerful.
Especially at this early stage, however, the investment decision is based on the founders and the DNA fit of the founders and the problem they are trying to solve. Some of them can be coded into algorithms and learned from AI, but there are still intangible values that ultimately ask the question: Do we enjoy spending time together?
RB: How was the reaction among radar founders when they are discovered very early by InReach software
RB: The first question is always: "How did you hear about us?" , Once we explain what we do and how the platform works, we establish a direct connection to the entrepreneur. This is exactly what happened when we met five entrepreneurs in Vilnius who had founded a company called Oberlo. The following year, we helped them grow to 30 employees in Vilnius and Berlin before being taken over by Shopify.
We have a very entrepreneurial approach to investing. We operate InReach more as a product development organization rather than a professional service company. That's why we feel native to the entrepreneurs we talk to. We try to share our experiences and best practices throughout the organization, be it in the form of OKRs, various agile development methods, product roadmaps, etc.
Early success of promising entrepreneurs is not the only benefit that DIG offers us. We are also very efficient and respond to the analysis of inbound opportunities. When you visit our website, we optimize our website to get visitors to share their startup with us. We're not about being bombarded by opportunities because we've developed a scalable workflow that allows us to effectively manage a significant dealflow.