In recent years, we have observed unparalleled growth of new technologies, with the global pandemic even further accelerating this transition. What was first viewed as an immovable obstacle and an imminent slowdown in business activity proved to be a catalyst for even more innovation. After the initial panic of 2020, the next year was booming with cutting-edge solutions and many VCs were recording great returns on their investments, boldly supporting big ideas at many stages. The funds which came up on top after the turmoil were characterized by their agile, tech-driven approach and a whole stack of software tools that enabled them to tap into new investment strategies and increase profitability.
What is a VC tech stack?
VC tech stack is a range of technologies, apps, tools, and pieces of software, which are used to optimize, automate and standardize the management of the VC fund as well as the deal-making process. This topic is especially compelling these days, as we can observe the emergence of new tech solutions built specifically for investors, which are on their way to replacing the general ‘multipurpose’ software, still widely used by the majority of GPs.
As the investment landscape changes, it is becoming clear that the technological disruption is no longer limited to VC’s portfolio companies - the funds themselves are becoming more tech-savvy. Leveraging data, machine learning, AI, and other advanced software solutions is not just a good addition to typical in-person meetings and outdated spreadsheets, but a necessity for funds to stay afloat and keep their competitive edge.
As the topic of VC tech stack grows in importance, there are more publications and platforms which provide guidelines for VC managers and help in organizing the complicated process of crafting a perfect tech base.
What are the benefits of having the right VC tech stack?
The advantages of a well-selected tech stack are innumerable - it can address the common pain points VC firms are trying to solve, streamline internal processes, accelerate the deal flow, improve data quality, and facilitate access to real-time information. Moreover, leveraging new technologies can not only increase the productivity of VCs and help them be more agile, but also free a lot of time from their hands to focus on something no computer can do - close deals and build valuable, long-term relationships.
The Data-Driven VC Report by Andre Retterath is an incredibly helpful tool and a great place to start analyzing VC’s dealmaking process to highlight weak points that could be well corrected with the right tech. We are especially proud of our platform Vestbee, an operating system for the early-stage tech ecosystem, that has been featured in the report as one of the top matchmaking tools for startups and investors!
The report breaks down why AI and other modern tools can very effectively change the distribution of ROI across different deal stages - so that it can become less concentrated in the early stages and more resemble the normal distribution. On top of that, according to the report, machine-learning models are proven to outperform human investors in screening processes by up to 60 pp. It’s a great advantage for GPs, which as a result can reduce miss rates by considering all available data for decision-making and ensuring higher deal coverage.
It’s also worth noting that a data-driven approach is an excellent way to eliminate human error and unconscious biases, which typically contribute to less-than-rational decision-making. According to the report, less than 20% of inventors are female, and differences in ability do not explain the disparity. What’s more, the data shows that female founders and leaders even outperform male-owned startups. This subconscious predisposition towards favoring male founders, often from wealthier and more developed regions (such as North America and Europe) can be greatly reduced with the right tech. So a data-driven approach can result in a more inclusive and fair VC landscape.
When it comes to specific processes, which can be optimized with the right tools, VC Tech Stack report from Miguel Pinho provides some insights from leading firms. Its scope is very broad and includes software for scheduling, chatting, knowledge sharing, CRM, deal flow, cap table and portfolio management, monitoring and reporting on portfolio companies, researching and benchmarking, managing expenses, projects and communication channels.
So to sum up, it’s apparent that VCs need to be well-equipped to adjust to the changing environment and stay competitive. Nowadays, they often operate and scale like corporations, despite much smaller teams - with in-house marketing and engineers.
This article serves not only as an introduction to the topic of VC tech stack but an introduction to a new series of articles, in which we will examine many different tools VCs can use to make sure they never miss an opportunity! We will bring you the top tech tools for all stages of investing - from CRM and portfolio management to databases, research, community building and partnerships. Stay tuned!
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VC Tech Stack: Top Tools For VC fund to streamline fund administration, reporting, portfolio management and investor relations (by Katarzyna Groszkowska, Editor, Vestbee)
VC Tech Stack: Virtual Data Rooms For VC Funds (by Katarzyna Groszkowska, Editor, Vestbee)
VC Tech Stack: Portfolio Management Tools (by Katarzyna Groszkowska, Editor, Vestbee)
VC Tech Stack: Productivity Tools for VC Funds (by Katarzyna Groszkowska, Editor, Vestbee)
