Why Early-Stage Investors should investigate Algorithmic Deal Discovery

Why are early stage investors still reluctant to implement algorithmic deal discovery as a first layer of filtering to spot more relevant investment opportunities?

Something struck me in June 2015 and has been frustrating me so much ever since, that I made it my life mission to try and fix it. I co-founded and ran a global venture capital conference network for 6 years at the time, where I saw hundreds of VCs on our stage, pitching founders about why they needed their money and expertise. At each event we also scheduled roughly 300 one-on-one meetings, matching these investors with fundable founders of growing companies. The whole offline thing was just semi-efficient — here’s why:

Although the participating founders and investors did create lots of new business in just a one-day conference, at the same time this format remained inefficient, simply because it would still be random people meeting each other without an (immediately visible) “bridge” that brings them to find each other and sit physically together — a person, experience, or character trait they have in common. Investors replied “not for us right now” and founders replied “I need to pitch everyone else today as well as I need funding right now”.

Let’s pause here for a second to take a space shuttle perspective on what’s still status quo in early-stage investing world today — April 2018.

On the one side, we observe all sorts of early-stage investors alive on this globe. On the other side, we observe all founders of technology-driven startup companies.

Goal of the game is to enable high returns for both new and experienced early-stage investors. And firstly, to enable founders to build the change they wish to see in the world…

On top of that, 3 facts that make me wonder even more why the truly successful and global investor — founder matching issue hasn’t yet been solved in a way that Uber solved access to rides, Airbnb access to rooms,… you get my point.

FACT 1: Globally there’s far more money available than fundable early-stage companies. People who want and who need to invest money are not finding the right deals fast enough (typical informal investors). Or they have too many incoming deals they don’t know how to best filter them (typical formal investors).

FACT 2: Most Early Stage investors believe the best deals come only via their people network. Investors generally don’t investigate smarter ways to discover & filter new deal opportunities. They just follow the herd and use the conventionally available, industry-standard tools. And in their network they trust! (but I have no clue why they don’t use that given to automate deal discovery within their network).

FACT 3: Correctly designed algorithms are more impartial than biased humans. Investors could make well-informed decision that neither their network nor their intuition suggests.

If there’s more money available than ideas, then why is FACT 1 still the biggest and most common problem in early stage investing? Why does FACT 2 apply to almost the entire investor community if FACT 3 can at least solve the basics of the biggest pain? And lastly, why has the global early-stage investor industry not embraced algorithmic deal discovery yet massively, just like — for example— the online dating industry did several years ago? It’s completely normal to find a partner online, then meet/date, then get married. Yet, it’s completely absurd for wealthy people to find a founder of a fundable early-stage company online, then meet/date, then get married (aka close a deal).

I guess behavioural change is simply hard to enable unless “everyone is doing it”…

There’s an important parallel between a romantic relationship and a professional one. In both cases you need a reliable partner who believes in the same values and is ready to work hard for a common success. And while the online dating industry has been implementing cutting edge solutions such as DNA analysis, the early-stage investment ecosystem seems to still rely on its outdated model and tools.

The paradox? A huge industry that aims to facilitate disruptive change in technology via investing sticks to old-fashioned and ineffective workflow. That’s not just a pure lack of efficiency in terms of resources, but also sets a negative example for first-time founders (their key “customers”) who then end up pitching anybody with money. Money doesn’t equal success. The right team does.

To me, this is the right status quo:
Investors are service providers. Founders are makers.

Neither side should spend their time and money on finding their needle in this huge haystack. Finding “your better half” on the other side now can and should be enabled via smart technology. Deep learning and A.I should serve as the first layer of filtering on both sides to attract one another. fundsUP.co is dedicated just to this — algorithmic deal discovery. Nothing more, nothing less. Our mission is to take the friction out of early-stage fundraising — once and for all.

Most people avoid big changes until they are forced to accept them. But if you consider yourself an early-stage investor (regardless if / what you call yourself, HNWI, PE expert, fund manager, deal originator, startup consultant, angel investor), it’s your duty to step out of your comfort zone and experiment with what 2018 has to offer. Algorithmic deal discovery is on top of that list.

Just because you can afford a blind shot doesn’t mean you should take one. Keep in mind that unicorns are considered to be heading against the crowd. If you wish to discover one, make sure that your approach doesn’t fall into mainstream.