How to make it on the Road to Dakar? Winning the race with a strong investors’ brand. In this blog series, we explore what it takes to get your investment tools in order by looking at the following four major areas: research, deal flow, portfolio management and network management.
There is some truth to the saying that “investing in early-stage tech is more of an art, than science”. However, just as the Paris-Dakar rally is not won purely based on enthusiasm and gut feeling, but rather the adequate handling of the right machine and equipment, early stage investors also need to be adequately equipped to perform. Funnily enough, we found out that although a majority of investors deal with innovation and technologies every day, they stick to excel spreadsheets, word documents, as well as paper and pencil for their own work. “The blacksmith’s horse has no horseshoes” is resounding in our day and age as well. To be fair, technology for this industry has only evolved a couple years ago and the adoption rate is rising. The need for a technology stack is not only directly correlated to the rising complexity of the business, it is particularly necessary to track one’s investments effectively as well as providing resource efficiency. Investors have to balance their fix costs as they have a direct negative impact on the IRR. Whether you are mostly looking for a deal flow at the very beginning, or just started to improve your inner processes, or find yourself in the need of a better way to track a large number of investments: you will have to choose if you stick to the old way or implement a digital technology stack for your early stage investment business. Ultimately, you want to choose the best machine if you want to get to Dakar.
First quest: what does my machine need to be able to do
To guide you through the windy and sandy maze on your route to Dakar, we have divided the technology stack into four major areas:
- deal flow,
- portfolio management,
- and network management (including business intelligence, monitoring and internal communication).
Technology stack for Research
VCs provide research: a) to gather the important expertise b) to be known as an expert in the field and c) gathering inbound deal flow. Thus to make it onto the race track, the rally driver needs to prove his skill and practice.
Just as the race driver needs to first train to become one, investors need to do their homework – this is a time investment which needs to be made. There are many useful tools providing valuable data and information to facilitate your research such as
- Product Hunt,
or paid services such as
- CB Insights,
- Bureau van Dijk
which should be systemically followed in order to understand market dynamics, technology trends and current developments of valuations – as prices (multiples) will change in hype-cycles just like publicly traded companies. Apart from increasing the likelihood of successful investment strategy, venture investors need a deep understanding of markets, investor landscapes in a certain field and eventually deciding upon certain investment niches over others. The distribution of supply and demand of innovation across industries is critical to analyze in advance of a deal (as far as possible), as you will need to exit an investment down the road.
The pricing usually varies, depending on the functionalities and features a user prefers. Below is the table showing the comparison of free and pay services for some of the useful research platforms. See our table of software features.
Free databases like Crunchbase (in its basic version at least) and Product Hunt represent useful tools for general information, data mining and getting a quick overview of markets and competition. However, if your ambition is to dig deeper and generate high-quality information and real insights – including news and analysis, we recommend CB Insights, BvD and Pitchbook (make sure to verify if company data is 100% correct through a commercial registry, though). For the access to structured, official commercial register data on the global level we recommend Kompany.com.
As a company with a focal point oriented more towards European markets, our machine of choice is Pitchbook. The platform contains a better database of funding histories, valuation, series terms, information about the investors and startups and much, much more. The integration is well executed, as it enables exporting possibilities and integrates directly with other platforms, such as Salesforce and Microsoft Office Suite.
Be known as expert and gather inbound deal flow
A simple but effective way to strengthen your presence in the ecosystem is simply by publishing valuable insights through platforms like Medium for blogging, Quora for Q&A interaction and Slideshare for presentations. Your public presence will not only boost your reputation as a market professional, it will also help to gather inbound deal flow. The better your market reputation, the stronger you are as an investor, the higher the quality of deal flow and eventually your negotiation position will be when it comes to terms and valuation. If a large number of startups are addressing you as an investor, you will statistically have a better chance to select superior deals, but you need to know what you are looking for.
The platforms used for presentation of content (Medium and Slideshare) come in very practical packages, as the free versions offer a broad range of possibilities for raising awareness of your brand. For the purpose of sharing content, we consider Slideshares basic service more than enough. Depending on the preferences and subjective orientation, its Silver, Gold and Platinum subscription models offer upload benefits, monthly tracking of leads and geo-targeting, depending on the chosen model.
Research comes as a starting point, the first lap of your long and intensive race. It is also the point where you start assembling your powerful motorbike that should get you to the finish line before the other contestants. Be careful, power is not everything. The machine has to be balanced out according to your needs and adjusted to the conditions of the race. In the next lap, we will pay attention to the deal flow, the next critical piece of assembly you will need for your powerful drivetrain.
Some of the best practices from investors like Andreessen Horowitz or Sequoia that are using various platforms for their public presence could also be of use to you:
- The Internet Is Your Movement by Andreessen Horowitz
- Four Numbers That Explain Why Facebook Acquired WhatsApp by Sequoia on Tumblr)
- David Teten Blog
- Sequoia Capital’s Doug Leone on Luck & Taking Risks by Sequoia