A quick look at the Venture Capital (VC) landscape reveals that many funds have a specific -raison d & # 39; être that puts it in a nutshell: some focus, for example to a particular region others are geared towards a particular type of technology or a stage-specific company.
InReach Ventures, based in London, is an "AI-operated VC firm" and today the closure of its first real fund has been announced at 53 million euros (60 million dollars) ).
Needle in a Haystack
One thing that most VC companies have in common is their basic investment method – they use research and due diligence to assess the risks of companies an investment opportunity. These risks vary depending on the phase in which a company is located, of course, in seed or series A-stage companies, which are generally more risky than companies that are on course for growth and are already arguing about an exit. But there is a challenge that is orders of magnitude greater than the due diligence: how do VCs actually find companies that are worth investing from the beginning?
Startups often move to the most important technology centers in the world, because there money is Silicon Valley, New York or London. And here VCs often find their next investment. Looking for business advancement elsewhere is not so easy, especially in regions like Europe, where VCs spend a lot of time in outposts and have to meet thousands of startups each year. And what about start-ups who are not actively looking for investments but would consider funding if they fell on their lap?
These are challenges that InReach Ventures wanted to solve with Big Data, Analytics, and Artificial Intelligence (AI). InReach Ventures was founded in 201
InReach Ventures was founded in 2015 by General Counsel
John Mesrie. Around 3 million euros (3.5 million US dollars) were invested in the development of a proprietary internal search platform, which is internally referred to as DIG and tracks all possible data points to discover and evaluate startup startups. These include linking LinkedIn or Facebook profiles for changes, corporate recruitment sites, website traffic, and more.
InReach is in many ways similar in composition to what a potential portfolio company might look like – data is the currency, more than half of its employees are software engineers, and Smith has his own Chief Technology Officer, who is DIG's lead developer Platform was.
"From day zero on, the company was founded with a unique mindset and strong product and strong technology DNA," Bonanzinga told VentureBeat. "This is the only venture company where there are more software engineers than investors."
According to Bonanzinga, DIG represents three core layers that encompass data, intelligence, and workflow.
"The data layer is a mixture of massive data aggregation with extensive data enhancements, including the generation of a large amount of original data," he said. "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. Given this data-driven approach and the associated significant deal flow, we invest heavily in building a workflow product that enables us to efficiently handle thousands of businesses every month. To be more specific, Bonanzinga said that the company analyzed about 2,500 startups each month would get through more than many other traditional VC companies in a year. He emphasizes, however, that the platform is not about automating decision-making for their investments, but rather about making the VC process more efficient, scalable, and informed.
InReach Ventures already has eleven start-ups in its portfolio Sweden, Hungary, Italy, Spain, Finland, Germany, United Kingdom and Lithuania. In Lithuania, there is even the first exit of InReach Ventures. The e-commerce juggernaut Shopify bought Oberlo in 2017 for $ 15 million.
The InReach Ventures portfolio's many locations also point to one of the largest sales of the platform. Points: It helps find startups off the beaten path. But that only conveys part of the picture. The DIG platform also helps find promising startups who are not actively seeking money. As a result, investors have the opportunity to invest in startups instead of investing in the other direction. Moreover, the data-driven approach does not require investors to travel around Europe to meet a handful of startups.
"Our technology platform allows us to pursue a geographically agnostic approach to discovering the opportunities of the most promising startups from across Europe," Bonanzinga continued. "More importantly, however, we are turning the traditional VC model on its head by using a proactive, data-driven software approach for early-stage investments across Europe. Proactivity is the key. The traditional VCs in the main hubs are still passively waiting for entrepreneurs to come to them. We are looking for the most promising start-ups who often target them even before they start fundraising. "
Note that InReach Ventures' investments have so far not come from a traditional" fund "in the legal sense. The word – instead, created a so-called" non-institutional investment structure "to support its start-ups , However, everything is changing with the closure of this new fund.
InReach Ventures is part of a growing number of VC companies that aggregate data as part of their investment strategy. Sweden's EQT Ventures has developed a machine learning system called Motherbrain to find young startups flying under the radar. However, both EQT and InReach were pioneered by San Francisco's SignalFire, founded in 2013 by Chris Farmer, a former VC of Bessemer Venture Partners and General Catalyst Partners. For six years, billions of data points have been tracked in millions of startups worldwide.
"We very much like SignalFire and its founder Chris, and we share a common passion for data and the use of technology," said Bonanzinga. "SignalFire's approach is perfectly aligned with the transparent Silicon Valley ecosystem, which is based on a highly concentrated social graph of entrepreneurs, investors and talent. Geographical fragmentation and lack of transparency in Europe require a different approach that is focused on discovery, albeit still based on data and technology. "
This is the best indication we have that InReach Ventures does not intend to extend its scope beyond Europe – DIG has been developed with Europe in mind. "We believe in focus," added Bonanzinga.
The Moneyball investment strategy is gaining importance elsewhere in the technology sector. A few months ago, it was announced that the European technology conference Web Summit is planning a $ 50 million VC fund to use the startup data from the annual mega-event. The conference grew from a modest 400 participants in 2011, when still in Dublin, to over 60,000 in 2018, with Lisbon now at home. In fact, Data Science has played a major role in the development of Web Summit, and it is noteworthy that a sizeable mutual fund is now being created on the back of its massive data base.
There is a clear trend, and this is something. It is likely that more of the total investment spectrum will be seen, Bonanzinga is not convinced that it will always be the right deal.
"I'm assuming there's going to be a new hype – the rush to tick the box" We have a data strategy, "he said." We become many companies with over 30 investment professionals and one data engineer The real question is how many companies are willing to turn their professional service DNA into a product DNA, as always, more of a personal / organizational question than a matter of using technology.