Moneyball is a newsletter from Koble exploring the limitations of human decision-making and their implications for startup investing.
We’ve spent three years developing our groundbreaking algorithms, which discover early-stage startups that outperform the market and predict their probability of success.
This week
🧠 Mental Model #30 – Last-mover Advantage (Part II) – Barbarians At The Gate
📖 Investor reading – The new realism in Venture Capital is healthy – Profitable exits also do not depend on a robust IPO environment – Eye On AI: So much for that funding slowdown
💬 Some tweets – VC gets a lot of sh!t, but VC rocks – DoorDash application for Venture Capital from 2013 – Nvidia’s market cap has surpassed the size of Canada’s economy
A reminder
In case you missed it, Koble recently contributed to an article from Weekend Fund’s Signature Block on the investors, data scientists, and tool builders building the future of Venture Capital.
Barbarians At The Gate
Being the second installment of a two part blog series on Venture Capital’s endgame.
The “Data-driven VC” movement, championed by Earlybird VC’s Andre Retterath, has been gathering momentum over the past year.
Andre’s popular newsletter shares insights into data-driven innovation in VC and connects the dots between research, reviews of tools and databases, deep dives into various VC tech stacks, interviews with experts, and implications for stakeholders.
As we noted in our recent piece on VC’s endgame, early adopters of data and technology in the VC domain need to watch out for last-movers. A small, opaque cohort of firms are adopting a purist, hardcore approach to leveraging data in the startup investment process.
Correlation Ventures showed us the art of the possible. And more recently, names like SignalFire, MoonFire, and QuantumLight are looking to introduce the last great product innovation in VC.
To extend the chess analogy, these players are seeking to checkmate traditional firms by rewriting the code of startup investing.
Then there’s everyone else. Some VCs recognise the monumental significance of data, and are investing in this area at the management level. And others are opportunistically riding the Data-driven VC wave, latching onto the concept in order to boost their marketing efforts with LPs and founders.
It will be interesting to see the returns of so-called “Data-driven” funds that are pure marketing exercises in 10 years’ time. But by then, LPs will have likely forgotten the original thesis, and GPs will have banked a decade of salary funded by management fees.
What’s in a name?
How to distinguish between “Data-driven” and “Quant VC”? The answer lies in the investment approach:
“Data-driven” means relying on data and tools to streamline operations and incorporate more information into investment choices. Humans still make the final decisions.
“Quant VCs” means removing the human completely from the investment decision and aiming to fully automate the operations. This requires technology that is orders of magnitude more capable and complex.
Data-driven VCs integrate data points into human investment committees, whilst Quant VCs make investment decisions that are exclusively driven by algorithms. To use Henry Ford’s famous analogy, Data-driven is riding faster horses; Quant is building cars.
Fully fledged “Quant VC” is still nascent; a fragmented community of investors, programmers, AI researchers, and quants; an uprising, largely ignored by mainstream Venture Capital, more humoured than respected.
These players understand that it’s not the strongest VC that survives, nor the most intelligent, but the one that’s most adaptable to change (and Data Science). But they are outliers. We need to consider the possibility that it will be public market investors who emerge as the last-movers in Venture Capital.
Implications for investors
If all VCs rely on the same data, nobody wins.
Generating alpha requires proprietary tech; hedge fund managers, traders, and quants get excited because they have the technical expertise to have an edge and generate outsized returns.
These outsiders recognise the opportunity to systematise startup investing, and the scale of the prize. And where technical expertise and relationships flow, capital follows.
To those who say that Quant VC is impossible because only humans can see the soft side of founders, and new markets are art, not science, we say (stealing from the enigmatic Marcelo Bielsa, a football coach who has built a reputation on fusing data analysis with deep relationships):
“New ideas are only mad until they triumph!”
The last will be first, and the first, last. Could it be that the last-movers in private markets will be the first-movers from public markets? The technologists who “solved” the stock market have found a new problem worth solving.
The Barbarians are at the gate of the VC industry. And things are about to get interesting.
Work with Koble
At Koble, we’ve spent three years developing our groundbreaking algorithms, which discover early-stage startups that outperform the market and predict their probability of success.
We’re working with forward-thinking angels, VCs, family offices, and hedge funds to re-engineer startup investing with AI. If that resonates, get in touch.
Investor reading
💰 The new realism in Venture Capital is healthy – Rising stockpile of “dry powder” is a sign of private capital’s growing attraction as an asset class.
🦄 Profitable exits also do not depend on a robust IPO environment – The predicted slowdown, which many VCs really believed was coming, seems to be more mythical than the unicorn.
🤖 Eye On AI: So much for that funding slowdown – The fascinating “Magnificent Seven” phenomenon, the unstoppable force of AI, and the trends shaping public markets.
Some tweets
Parting shot
“The only reason for time is so that everything doesn’t happen at once.”
― Albert Einstein
Regards from your [barbaric] startup investing AI,
About Koble
Koble is re-engineering startup investing with AI, applying quantitative strategies that have disrupted public markets to early-stage startup investing.