Data Disruption in Deal Flow

Startups Weekly: The Rise of Data-Driven Early-Stage Investing

This week’s edition of Startups Weekly offers a human-centered perspective on current startup news and trends. Subscribe here to receive future updates directly in your inbox.

AngelList’s New Fund and the Data Debate

The recent closure of AngelList’s early-stage venture fund has reignited a crucial discussion regarding startup fundraising: the role of data versus traditional assessment methods. This $25 million fund bases its investment choices entirely on a single, key metric AngelList has consistently monitored over time – a startup’s demonstrated capacity for talent acquisition.

During a conversation with Abraham Othman, head of the investment committee and data science at AngelList Venture, I learned that their approach fosters more collaborative relationships with portfolio companies compared to other investment firms. He explained their strategy as presenting their data set and then evaluating the potential for investment.

Challenges and Considerations

While relying heavily on such indicators for investment decisions offers advantages, it’s not without potential drawbacks. Historical precedent demonstrates the importance of thorough due diligence, particularly from a human standpoint. Evaluating a founder’s character beyond their recruitment abilities can prevent future complications or legal issues.

Furthermore, a surge in applications could be attributed to factors like compensation, geographic location, or even publicity from prominent tech publications. This influx might suggest potential success, but could equally be a consequence of effective marketing efforts. AngelList, however, believes the dynamic nature of hiring demand strengthens its significance as a metric.

The Double-Edged Sword of Data-Driven Investment

I anticipate that the increasing use of data in investment decisions will present both opportunities and challenges. Traditional investment practices, which often prioritize background and company culture, have historically excluded many qualified individuals. However, the in-depth conversations with entrepreneurs, which add a human element to the process, are also valuable before substantial funding is allocated.

The discussion surrounding due diligence isn’t new, and investors utilizing data to inform their decisions is a well-established strategy. This approach is common among late-stage investors, private equity analysts, and even informed individuals tracking financial performance. Early-stage startups and investors, including ClearCo and SignalFire, have been developing data-driven strategies for years.

A More Hopeful Premise

In a strong market, the idea of an impartial, data-driven investment decision feels particularly promising. While funding isn’t a panacea – the primary reason startups fail remains difficulty in securing further capital – addressing the gender funding gap and implementing a more automated process could make data-driven decisions seem less idealistic and more inevitable.

For a more comprehensive analysis of this topic, please refer to my TechCrunch+ column: Is algorithmic VC investment compatible with due diligence?

Other Startup News

This newsletter also covers a new fund geared towards recent graduates, advancements in legal technology, and the expanding network of startups associated with Plaid. You can also find my insights on Twitter @nmasc_ or listen to me on Equity, a podcast dedicated to the business of startups, where we analyze the numbers and complexities behind the headlines.

• Stay updated on startup trends.
• Explore new investment strategies.
• Follow the latest developments in startup technology.

The Longevity of $1 Million in Today’s Investment Landscape

A $7 million investment fund, spearheaded by Flybridge founding partner Jeff Bussgang and Harvard Business School faculty, has been established to provide capital to recent Harvard University graduates. This marks the third iteration of the Graduate Syndicate, which finalized its closing this week according to SEC documentation.

Key Takeaways: The syndicate originated several years ago in response to a need identified by business school professors – a demand for initial funding among promising students. To mitigate potential conflicts of interest, including bias or unequal influence, Bussgang explained that investments are exclusively made in founders after they have completed their academic programs.

To date, the syndicate’s portfolio encompasses 60 companies. Notably, 41% of these ventures are either led by or co-led by female founders.

Bussgang’s Perspective on the Evolution of Pre-Seed Funding:

Additional Insights and Resources:

• Christine Tsai of 500 Global presents her venture capital forecasts for 2022.
• Analysis of the potential timing for a slowdown in VC investment activity.
• Details regarding Facebook’s decision to decline funding a Workplace spinout, which was valued at over $1 billion.

And the startup of the week is…

Lawtrades has been selected as this week’s featured startup. In today’s increasingly distributed work environment, adaptability is crucial, yet often difficult to achieve. Fortunately, Raad Ahmed and Ashish Walia, the co-founders of Lawtrades, have been actively addressing this challenge since 2016.

Lawtrades aims to revolutionize the way large corporations access legal expertise, while simultaneously offering legal professionals opportunities for more adaptable and remote work arrangements.

Key details: The company successfully secured a $6 million Series A funding round. Four Cities Capital spearheaded the investment, with additional participation from Draper Associates and 500 Startups. To date, the lawyer network has generated over $11 million in earnings through the platform.

Furthermore, more than 60,000 work hours were completed on the platform in 2021, representing a 200% increase compared to 2020, as reported by Christine Hall.

Ahmed’s vision:

Other noteworthy startups:

• Mayht is challenging established leaders in the speaker industry.
• A Web3 startup focused on ‘Proof of attendance’ has raised $10M to create NFTs from shared experiences.
• Engineers formerly with SpaceX have launched an autonomous, electric rail vehicle company.
• Roll introduces a new application enabling subscriptions to exclusive creator content.
• Rebundle secured $1.4M in funding for its plant-based hair extension products.

Plaid Completes Acquisition of Cognito

Plaid, a leading fintech company, has finalized the acquisition of the identity verification platform, Cognito, in a deal valued at approximately $250 million. This information was reported by Alex Wilhelm of TechCrunch this week.

The move signifies Plaid’s evolution beyond simply facilitating communication between fintechs. The company is now actively developing a broader suite of services built upon its core connectivity infrastructure.

Key Takeaways: This acquisition follows the collapse of a previous agreement that would have resulted in Visa owning Plaid, ultimately leading to a substantial re-evaluation of Plaid’s worth. As discussed on the recent Equity podcast, Plaid is demonstrating increased maturity through initiatives like a startup accelerator and strategic acquisitions.

Recent Tech Deals

• Microsoft’s agreement to purchase Activision Blizzard is set at $68.7 billion.
• An analysis suggests Microsoft’s market capitalization exceeding $2 trillion makes the Activision acquisition a financially sound investment.
• Tesla shareholders are requesting a judge determine if Elon Musk pressured the board regarding the SolarCity acquisition.
• Francisco Partners has acquired a significant portion of IBM’s Watson Health business unit.
• Guidance on successfully navigating partnerships following an acquisition is available.

TechCrunch Updates

• The Equity podcast, co-hosted by Alex Wilhelm and Mary Ann Azevedo, will be recorded live on February 10th. Attendance is free, though the producers may suffer from an abundance of wordplay.

Tech News Roundup

This Week’s Coverage:

From TechCrunch

The first major tech antitrust legislation is progressing through the legislative process.

Increased regulatory scrutiny is anticipated for the burgeoning cryptocurrency market in the UK.

An examination of whether some “unicorn” companies are overvalued and lack substantial underlying value.

Open-source developers are recognizing their collective influence and potential for negotiation.

Crypto.com has acknowledged a security breach affecting hundreds of customer accounts.

The CEO of Peloton has confirmed corrective measures are being implemented and refuted reports of a complete halt to bike and treadmill production.

From TechCrunch+

An exploration of whether quantum computing will remain a niche area for specialized venture capital firms.

Advice for companies seeking to expand operations into the United States.

Strategies for establishing an effective product advisory council for startups.

Five areas where venture capitalists can significantly contribute to addressing climate change.

Best regards,

N