Data at your fingertips
Why you should think about your data so that… you don’t have to think about your data.
It's no secret that data is an important part of venture investing. Even early stage investors -- who put more weight on qualitative impressions of the team -- bring data to bear in each step of the investment process outlined in our first post. You can have a team in front of you with all the right pedigrees, but if your read on the market throws up red flags, that can be more than enough to close the checkbook. With more founders and investors than ever getting into business, the time available to decide has never been shorter. It’s vital for investors to surface the right data at the right time. In this post, we'll talk about how you can use intentional process design and automation to achieve a constant state of "data-at-your-fingertips."
Building a successful data strategy in venture investing revolves around four core principles:
This one may seem obvious but, as we touched on in our second post, it is an absolute non-negotiable that you store data in a standardized, digestible format. Whether you choose an out-of-the-box CRM solution or build something custom in Airtable, it is essential that you have a standardized, sustainable method for collecting and storing data on companies and investments. We'll do a deep dive on our recommendations here in a future article.
Ever found yourself in the position of needing to decide whether to participate in a portfolio company's follow-on round, but the terms of the original investment are buried in a PDF in someone's inbox? Or the company's recent financials are obscured in an unstructured investor update in an unlabeled folder?
You can’t make decisions using data that aren’t visible to you and your team. As we mentioned in our second post, the way you store data needs to be predictable, if not structured. That means, for instance, setting up a standardized structure for document management in Dropbox or Google Drive, along with document naming conventions so that you don't find yourself digging through tens or hundreds of documents under a time crunch.
Automated, actionable insights
Depending on the size of your portfolio, the amount of data stored in your CRM may be overwhelming to the extent that it's no longer valuable. In order to be valuable, data needs to be actionable, meaning that it provides insight into the future that aids the decision making process. In order to make your data actionable, look for places where you can automate the process of transforming raw data into insights and intelligence. No, I don't mean using AI to make investment decisions for you (although that would probably be a cool topic for a future article). This could be as simple as setting up a formula field in your CRM to calculate your fund's fully diluted ownership in a portfolio company. Doing so will reduce the cognitive burden of performing that calculation each time you consider an investment decision.
Once your data is well-managed and accessible, you need to create a system to deliver that data to the right people at the right time. We're all familiar with the term "out of sight, out of mind," right? No matter how well stored your data is, it isn't valuable if your team doesn't ever look at it because they spend their days in Slack and don't bother to log in to the CRM. This is where delivering data to people's fingertips becomes incredibly important. Tools like Zapier can be used to send data to people (including to yourself) where they are, instead of asking them to proactively seek it out. For instance, you could set up a Zap so that when a new potential deal is added to the CRM, it automatically creates a deal-specific Slack channel and adds the relevant team members. From there, you could automate a follow up reminder after 7 days that would prompt the deal team with certain metrics relevant to making an investment decision. By doing so, you reduce the cognitive burden and task-switching costs of asking team members to leave "where they are" at an opportune decision-making moment in order to find data.
Taking a data-at-your-fingertips approach is low stakes. It's more about standardization and removing friction than it is about reinventing any wheels. It relies on inexpensive tools like Zapier. And it doesn't require a huge amount of change management, as the emphasis is about reaching people where they are. “Data at your fingertips” is one of the most valuable ideas fund managers - specifically emerging managers - can leverage in order to create a competitive advantage for their fund and the founders they support.