The venture capital (VC) landscape is undergoing a seismic shift, propelled by the advent of data-driven strategies. The "Data-driven VC Landscape 2023" report by Andre Retterath, Partner at Earlybird Venture Capital, provides a comprehensive overview of this transformation.
The report reveals that the leading 151 data-driven venture firms are setting new industry standards. They were ranked based on community nominations, the number of engineers in their teams, the relative share of engineers in the firm, and the number of segments covered with internal tools.
“This report sheds light on the leading data-driven VC firms and the people behind them driving the revolution, to understand the specifics of their setups, focus across the value chain, preferred tools, and a lot more. Beyond novel insights, it contains actionable guides and content to become more data-driven yourself.”
Dr. Andre Retterath
Interestingly, only 1% of venture capital firms currently have internal data-driven initiatives. However, an overwhelming 84% of VC companies are keen to increase their efforts and resources in this direction, indicating a significant shift towards data-driven strategies soon.
Why become more data-driven
In the fast-paced world of VC investing, time and efficiency are critical. The report demonstrates that embracing data-driven approaches and AI technologies can significantly enhance productivity. By leveraging these tools, VC investors can streamline their workflows, automate data processing tasks, and gain valuable insights to make informed decisions. This allows investors to allocate more time and resources to identifying and capitalizing on the right opportunities at the right time.
Source: Data Driven VC report
Effectiveness is another key aspect explored in the report. The VC industry operates on a power-law distribution, where a small percentage of investors generate the majority of returns. However, missing out on outlier opportunities due to limited deal coverage or inaccurate prioritization can have substantial financial consequences. The report reveals that data-driven approaches, such as machine learning models, have outperformed human investors in deal screening. By embracing these strategies, investors can reduce miss-rates, identify high-potential investments, and enhance their overall effectiveness.
Source: Data Driven VC report
Inclusiveness is a pressing concern in the VC industry, as unequal capital allocation can impede optimal returns. The report highlights the disparities in funding across different regions and limited access to the industry for underrepresented entrepreneurs. Data-driven initiatives have proven effective in mitigating biases and promoting inclusiveness. By leveraging these approaches, investors can make more equitable and unbiased investment decisions, fostering a more diverse and thriving entrepreneurial ecosystem.
