Slowly but surely, data is helping VCs look beyond networks for sourcing deals

Venture capital has traditionally been an industry that revolves around relationships. VCs invest in a startup’s idea but their conviction stems from the folks behind it. This largely makes sense because investing in a startup also usually entails entering a years-long relationship.

But backing companies based on the allure of the founder hasn’t always worked out. Indeed, it often gets investors tied up in companies destined to collapse for one reason or another. And depending on warm intros or networks also limits the amount of startups an investor considers, which further alienates founders who don’t have the same networks or hail from nontraditional backgrounds.

An increasing number of venture firms think the solution to cutting through the noise is by incorporating data science into their deal sourcing process. This wouldn’t be a crazy idea per se, as investors from other asset classes such as institutional investors, hedge funds and public market traders already embrace data-driven investing, but thus far venture has largely sat out of the conversation.

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