Advancing venture capital and startup funding with AI
Alliance VC recently co-led the pre-seed round in Deckmatch as covered by TechCrunch, Tech Funding News and Shifter (🇳🇴). Last year we invested in the seed round of Ark Kapital. Both fit our long-term thesis of investing in applied AI and open finance, yet now addressing our own “home market” of startups, growth companies and venture capital.
The Alliance VC foundation
At Alliance VC we take pride in our commitment to being a true partner to founders (see recent Medium story). As a partner-only firm, we are flatter and more equal than almost any other VC. An important principle is that founders deal directly with the responsible partner from first meeting to exit. All investing partners have long experience as founders, operators and/or investors, which we believe will result in a mutually better experience. We believe that our obsession with the direct relationship helps us to be chosen by top founders, be a better partner and ultimately yield better returns. These principles serve as our foundation for learning and iterating; knowing that the world is dynamic there will always be room to improve and new ways of working will evolve.
Alliance has invested in applied AI (Aquabyte, Boost.ai, Globus.ai and 1X) and open finance (Aprila, APEXX, Two, Bits) for nearly a decade. As a long-term investor experiencing the latest and strongest AI wave, we believe that a major platform shift is underway that will play out over the next decade. This shift will yield massive opportunities and impact most sectors, industries and companies both as an opportunity and a challenge.
Our belief is that AI will have a big impact on venture capital, startup and growth investing. The key question is: How it will play out? In general, the bigger the shift and the faster it happens, the more value will be created or redistributed. It is in such environments that venture capital has thrived.
Our thesis is that venture capital investing itself is best suited for co-pilot or augmented AI in the near term, in the same way, we believe it will impact many other professional services. (Christoph Janz of Point Nine has presented a similar idea on his blog).
A good co-pilot could massively increase the productivity of investment professionals in a traditional VC firm, as well as help surface less obvious investment opportunities. It would help free up time for higher-value tasks and mitigate some of the drawbacks of the relationship and craft aspects of the VC model.
For data-rich growth companies, we see an opportunity for more intelligent underwriting of debt than the currently dominant bank and venture debt models thru utilizing real-time data access and algorithms to inform credit decisions.
These perspectives underpin our decisions to back Deckmatch and Ark Kapital. It also shows our intent and ambition to win the future, by dogfooding AI for startup investing on top of the foundation of founder-partner relationships that we know work for us.
Deckmatch investment
Deckmatch was founded by the duo of Leo Gasteen and Walid Mustapha less than six months ago. Leo has a background in asset management and was the founder/CEO of Edgefolio, a platform connecting the hedge fund industry through data. Walid is a data scientist/PhD, who founded HomeFair (acquired by Marketer). Both Leo and Walid are active angel investors, who bring fresh perspectives and international experience into the Norwegian startup ecosystem.
Deckmatch is a pre-seed company, yet it was easy to be impressed by the very high speed of execution in building, getting market feedback and iterating with minimal resources from day 1. The founding duo exemplified “generative AI company building” — very powerful tools leveraged by very productive people.
Deckmatch’s tagline is “Supercharge your associate”. As experienced VCs we are able to consistently source high-quality deal flow thru strong relationships and networks — from introductions and reaching out to founders. We also intimately know the pain of finding the best companies in a flood of ‘cold’ inbound pitches, with or without associates or analysts. Inbound is inherently noisy, the volume is overwhelming to process, and it feels like searching for a needle in a haystack. VCs tend to deemphasize cold inbound due to its historically low ROI.
Deckmatch sets out to solve the top of funnel, including inbound, by separating the signal from the noise to uncover the nuggets in the goldmine — by structuring the unstructured and providing an AI-driven semi-automated process flow highlighting what is critical. Furthermore, Deckmatch aims to determine startup-investor fit and facilitate faster and better feedback.
The value proposition is Deckmatch’s first iteration is aimed at investors, while also benefitting founders. The ambition is to be of particular value to underrepresented founders that are not part of established networks and lack existing investor relationships, where the dysfunction of inbound and unconscious biases can be significant impediments. This would contribute to leveling the playing field for all founders, which we believe is great. We foresee that Deckmatch will be a valuable and productive tool for Alliance, and we are keen to help crack the code on making access to funding for startups more equitable.
“Above all else, what drew us to Alliance is a shared philosophy on how to build a defensible AI business. Arne and the wider team are also great sparring partners, and have proved instrumental since day 1 into getting us this far. Walid and I are thrilled to get to build out our vision with such thoughtful partners.”, Leo Gasteen, co-founder/CEO, Deckmatch
Ark Kapital investment
As startups grow and have real revenue and cash flow, it makes sense to finance some of the future growth with debt. While Alliance believes, and it should be said we are not unbiased, equity from venture capital funds is the best way to finance startups, it is great when equity is combined with other types of financing.
A challenge for software startups that want to borrow money is that they generally are unprofitable and lack ‘hard assets’, like real estate, to use as collateral. Startups don’t get full credit for the fact that both SaaS and consumer subscriptions have recurring and predictable revenue streams, as banks don’t primarily look at cohort data, unit economics and similar operational data that, in our opinion, says a lot more about the future of a company than historical income statements and balance sheets.
Ark Kapital was founded in 2021 to be a data-driven lender that uses AI to analyze operational data (in addition to traditional financial information) to predict future performance and extend loans up to seven years based on that analysis. We believe that is a great way to enable debt financing for startups in a scalable way.
What attracted us to Ark Kapital specifically when we invested in early 2022 was the founding team of Oliver Hildebrandt, Henrik Landgren and Axel Bruzelius. Before funding Ark Kapital Oliver was a serial entrepreneur, Henrik was a venture investor and analytics executive, and Axel was a banker lending to startups. We thought that combination of experiences gave the foundation to build a technology-driven lender that could combine fast growth, AI-driven analysis, and the best of traditional loan underwriting.
This and last year have proven how important access to capital is, especially in tougher times, and we believe data-driven lending will play an even more important role in startup financing going forward.
To learn more about Ark Kapital, check out the following video of co-founder/CPO Henrik Landgren talking about “AI transforming growth forecasting & financing” from Imagination in Action at MIT.
This post is co-written with my great colleague and Alliance partner, Henrik Torstensson. Check out his frequent and consistent writing and thinking on torstensson.com.
Alliance Venture Delta is proud to be backed by:
Supported by InnovFin Equity, with the financial backing of the European Union under Horizon 2020 Financial Instrument and the European Fund for Strategic Investments (EFSI) set up under the Investment Plan for Europe. The purpose of EFSI is to help support financing and implementing productive investments in the European Union and to ensure increased access to financing.
