Information and VC Investing

Roger Peng

Sam Lessin at The Information has a nice post (sorry, paywall, but it’s a great publication) about how increased measurement and analysis is changing the nature of venture capital investing.

This brings me back to what is happening at series A financings. Investors have always, obviously, tried to do diligence at all financing rounds. But series A investments used to be an exercise in a few top-level metrics a company might know, some industry interviews and analysis, and a whole lot of trust. The data that would drive capital market efficiency usually just wasn’t there, so capital was expensive and there were opportunities for financiers. Now, I am seeing more and more that after a seed round to boot up most companies, the backbone of a series A financing is an intense level of detail in reporting and analytics. It can be that way because the companies have the data

I’ve seen this happen in other areas where data comes in to disrupt the way things are done. Good analysis only gives you an advantage if no one else is doing it. Once everyone accepts the idea and everyone has the data (and a good analytics team), there’s no more value left in the market.

Time to search elsewhere.