Peachscore Brings Investors and Startups Together – When it comes to Venture Capital Investing, each firm has their own way of weeding out the potential booms from the potential busts. Whether they focus primarily on founder characteristics, understanding that some great founders will eventually find product-market fit, or primarily on early traction metrics, considering evidence of strong traction as sufficient enough to endorse a product and market, VC’s are always on the hunt for the next 10x company, but even the most experienced investor can fail to see the amazing potential in a company that’s just getting started.
However, according to an article by Chris Dixon of a16z, using data from fund-of-funds Horsley Bridge, VC’s tend to make a lot of mistakes, whether it’s missing out on a good potential startup, or putting money into the wrong startup. The article found that the average VC loses money more than half the time, and even the best VC’s lose money on more than 40% of their investments. Even worse, the lowest VC’s lose money on almost 80% of their investments.
For as smart as many VC’s are, there are sometimes facts that tend to get either overlooked or ignored during the startup search, which can blind VC’s to potential billion dollar opportunities. However, platforms such as Peachscore’s, an AI-driven platform that provides a FICO score for startups, and brings together investors and startups from around the world, are democratizing access to insights that were previously restricted to the proprietary, allowing VC investors to make more informed decisions, and never miss out on a high potential startup again.
Firstly, VC will often think a certain market is too small, and will be deterred from making an investment. This happens for two reasons. The first is due to what we call a Sleeper Market. In this case, the potential market is actually large, but it is perceived to be small. The second reason is due to what we call an expansion market or Trojan Horse Market. In this case, the immediate market actually is small, but there are much larger markets than the startup can expand into.
To avoid missing these markets, one strategy is to shift one’s attention away from what the market looks like today, and focus on the potential application of the underlying product innovation to a much broader range of customers, assuming that the underlying economics of the business may be able to change over time. Peachscore helps VC’s do this, by taking a more data-driven approach.
By collecting, and analyzing early-stage companies’ information in real-time using 14 different dimensions with over 241 evaluation factors, Peachscore’s engine can generate a risk rating, or Peachscore, for each company. This gives VC’s a detailed look into a companies and product’s potential, leading to less decisions based on market judgement.
Another reason VC’s miss out on potential unicorns is due to the region they’re in. Many VC’s will overlook a certain region, especially when it comes to the US, based on traditional ideas of where innovation and growth happens.
For example, in the US, 67.1 billion dollars worth of VC investing took place in California, New York, and Massachusetts combined, over 70 percent of deals done. At the same time, 3.8 billion dollars worth of deals were done in Minnesota, Michigan, Wisconsin, Illinois, Indiana and Ohio combined, even though today the Midwest is home to a third of the U.S. Fortune 500 companies, and 20 of the world’s top research universities.
Finally, VC’s also miss out on region-based startups if they don’t have access to an international startup.
The VC industry is taking off globally, with startups in countries around the world having record years in terms of investments according to an annual KMPG Private Enterprise Pulse report. And according to the same report, the global VC industry is up to its second highest level of the past decade, meaning there’s money to be made in international investments. By either not choosing to, or not having the ability to search through startups puts some VC’s at a major disadvantage when it comes to the unicorn hunt.
Peachscore understands the importance of searching globally, and is setting out to solve the accessibility problem VC’s and startups have. Peachscore’s platform levels the playing field, by using technology to connect VC’s with start-ups, wherever they are located. This would help create a true global meritocracy, and allow the late-stage, saturated economies in the US and Europe to find high-growth opportunities in underserved markets. It would also achieve more in regions like the Middle East and Africa for economic growth, development and even social stability than the traditional aid-driven approach.
While there are a myriad of reasons that a VC might make a bad investment choice, or miss out on a good investment choice, from poor judgement, to not enough data on the startup, to simply just failing to notice a startup when beginning their search, Peachscore’s approach would allow VC’s to efficiently filter through the thousands of high-potential start-ups from around the globe, and uncover opportunities that would have otherwise been missed.
To learn more about what we are trying to accomplish at Peachscore click here.