7 Ecosystem Data Points From Iratel Ventures — UPDATED

Deal flow, IV Score, network data and more

This is an update of the 7 ecosystem data points which was previously published here and here.

We are advocates of transparency and have been practising this by regularly discussing or publishing our data.

We gather data in many ways. We try to quantify many aspects of our deal flow and due diligence process, even aspects that are not easily quantified. We do this through the startup evaluation tools we’ve built (IV Score) and comparisons with other ecosystems. We do all this so that we can be more helpful to the community and provide insight for them so they can build better teams, products and ultimately successful startups. We also have a global network of investors and technology professionals with whom we regularly exchange ideas. This is based on our philosophy of Building Global Startups and supporting entrepreneurs wherever they are.

This data is a combination of results from our evaluations tools and what our team has used in the due diligence process. If you’d like to discuss specifics, leave a comment here or on our LinkedIn page or tweet us.

We’ve seen this data-driven investment trend take a wider adoption within the VC market. Social Capital has an excellent new service called “Capital as a Service”. You can read an explanation and some data points about it by Ashley Carroll here. Another VC firm whose work I respect a lot is Signalfire. In this Bloomberg video Chris Farmer explains briefly how the firm plans to deploy the $375m under its management in a data driven approach. Signalfire has built a massive end-to-end real-time data platform, supporting their founders with market intelligence and accelerating their ability to find exceptional talent. Elsewhere, we had seen that a Hong Kong VC had appointed an algorithm to its board, although not much data is available on their software system, called VITAL.

Abundance of capital and investment data is driving this trend. One of the problems of funding entrepreneurs has been the inability of the top funds to scale. In a world where capital is not scare anymore, it’s only a matter of finding the talent and that is done best by scaling your scouting and advice. Albert Wenger of USV has written an excellent book on abundant capital. He argues that in a post-capital world, the only scarcity is our attention.

Let’s start by looking at the geographic dispersion of the deals we see and our network.

We want to achieve a good deal to network ratio so we can meaningfully connect experts to entrepreneurs. Last time, we were looking to improve this ratio especially in Iran and Canada. Now, we’d like to see more deals in the UK and the US. So if you’re reading this from either country and are looking for funding, we’d love to hear from you.

Now let’s take a closer look and see how these startups are being evaluated. Teams are the most important aspect of any startup. The majority of the startups we see are founded by ex-CEOs or product managers with good domain expertise. Very few are straight out of university. Only 20% have a complete and experienced management team, an area that VCs need to work on.

From an opportunity point of view, naturally entrepreneurs are optimistic and exactly half estimate their market size to be above $500m with modest competition. Ideally, there are cases that the entrepreneur doesn’t know what their market size is yet because they’re going to create it.

On the other hand, entrepreneurs don’t rank their ability to capture market share as highly as they score their market size.

We always like to see product demos but occasionally see pre-product startups. Of those who have a product, the majority have a clear and focused view. On the other hand not many claim that they need patents to make their startup defensible and rely on the trade secrets and sheer volume of work that has gone into building a product to fend off competition. Only a minority plan to defend their IP through patents.

Our traction data presents a big dilemma. We have great teams building great products but when it gets to traction, many struggle. This is reflected in our data being evenly distributed between the different answers. This is also indicative of the stage we invest in, pre-revenue seed stage companies. We wish we had a magic wand that could give our startups instant traction. What we can help with is verifying the initial channels and provide a sounding board.

We call this following data point VC-Startup fit since we sometimes see deals that are too large or too small or we don’t feel there is a good match. However, the majority of the startups we see fall in the right range of raising between $250k and $750k and plan to reach breakeven within 36 months (i,e. only raise another small round). This is a problem with the startups we see. They are that ambitious or they are too optimistic about their revenue generation abilities. We recommend that they work backwards from where they want to be in long term and progressively place funding milestones that reflect those ambitions. If they really don’t see the need to raise much larger rounds, that’s fine but that may indicate that they are not a fit for venture capital.

Overall, the updated data show that we have a laser focused strategy for our deal flow but at the same time it could show that we don’t have the best picks within reach. With the next update, we’ll see how the data will change or if not, what it implies for our investment strategy.

Finally, the below table shows the pre-money valuation data with average IV Scores for each geography. These are not transaction but only offer prices. It shows a healthy trend for IV Score.

IV Scores for Iran and the US have increased whereas Canada and the UK have seen drops. We can see price and round size inflation across the board, especially in the UK (4x) and the US (~2x).

If you’ve found this post intriguing, useful or even controversial, please recommend it or leave a comment here or on our LinkedIn page or tweet us.

This is the twentieth in a series of posts about our investment criteria and ecosystem resources which was also posted LinkedIn. We’d love to hear from teams with crazy (but commercial) startups. Get in touch or attend our breakfast series. Finally, don’t forget to get your IV Score to prepare for your next VC meeting.