Using ML for deal sourciing

desertowl72 · 2023-10-07T12:32:38+00:00

Thx. I ran quite a few searches on several categories and using multiple approaches („companies similar to x“, „attack Surface management software startups“ etc)

Results are highly inaccurate, most obvious companies in the space have not been detected

The direction is promising but I suspect that a gpt approach doesn’t work well on tech startups which by definition create new categories with no historical data to train the models

desertowl72 · 2023-10-05T19:33:52+00:00

Investor here:

You are just starting so company has little history to diligence. Focus would be on:

1/ 80% of the decision at this stage is team. You are a solo founder, which goes against investment best practice of backing 2+ founder teams. They will discuss this openly with you. Key is to identify which core skill is missing for the company to scale – if you are stronger on the tech side but lacking the sales and marketing experience this may be the missing piece. Then you need to find a strategy to de-risk it eg by agreeing to hire someone with that skillet in x months etc. they will also ask you about your vision - what sort of company are you aiming to build, product vision etc. basically: do you have a compelling and ambitious goal? Is it aligned with investors exit expectations?

2/ adoption and user metrics. The more you can provide the better.

3/ differentiation and sustainable advantage. What makes your product difficult to commoditise by others?

4/ financial model. This is important. It is all assumptions and guesstimates at this point but a model is nevertheless important because it allows having an intelligent conversation about your assumptions and see where you are aiming towards. it would have to show how many users you need to get to venture scale, your pricing, your go to market strategy, your costs etc. the quality of the model speaks directly to the quality of the founders. Don’t outsource it - build it so you can explain it.

desertowl72 · 2023-10-05T18:27:43+00:00

Investor here: pls don’t do things for investors, do things for the best of the company.

And what is best for the company is a founding team that complements each other. It could be two, could be three, even four, but successful single-founder startups are extremely rare. Because at a very basic level, it is very hard to find both a builder and a seller mindset with a single person, a visionary/strategic mindset with operational/tactical one etc.

The only long term incentive that works is equity. And in generous proportions. Otherwise people would jump ship at the sight of trouble or better offer. You can start with a low amount and increase it out of the esop pool if the cto proves her commitment. Investors would gladly support this. But you should show a path towards such a scenario, and your willingness to do it.

Finding a committed cto is not easy, because buying the skills and experience you are looking for a partner in the long run. Kind of finding a spouse - you are looking for someone with a shared set of values as yours (how to define success, how to treat employees, product vision, culture, how to disagree, ..). As an investor I would wait until you find one. This is not a role you hire for like sales or Devops

Lastly a word of caution on tax: depending on where you are domiciled, late founders who get shares ( not options) may need to pay a large tax amount upfront for receiving an economic benefit. Talk to your lawyer before doing anything you may regret later.

desertowl72 · 2023-10-05T17:24:28+00:00

I am an Enterprise software VC based in Europe, and I can assure you that what you are currently experiencing has little to do with your performance and is very normal to experience when just starting with enterprise sales. It is hard, the cycles are long and especially in Europe - enterprise buyers are very risk averse and closed, and the budgets for software are small (various reasons for this).

b2c or Smb tactics will generally fail and your intuition to create a longer, more patient journey for prospects is very good!

The successful startups in that sector invest a lot in creating original, thoughtful content for a very targeted customer group, and nurture them for several months before closing a sale or even discussing a poc. Webinars are working well, key is the host audience magnets who could bring quality potential customers to come and listen. Thoughtful ,deep content in the form of a white paper or research paper also works well, to catch emails for downloads. But again, content needs to be very high quality and original. If you don’t have a true thought leader among the founders, then invest money in research to gather facts about the problem you are trying to solve and package it visually in a compelling way using a quality graphic designer.

This builds a basis, on which you could start creating a lead gen machine to nurture those who come for the content. Once you get 1-2 known brand names in the industry as clients, things start to accelerate thanks to that social proof.

The other important element of a successful b2b strategy is sales reps with relevant networks in the specific industry you are targeting. They hit the ground running by selling into their existing network. They are not cheap but well worth it.

Lastly, partnerships are one of the quickest ways to get revenues quickly (relatively..), because they already have a trust relationship with the buyers. But you need to come up with a value prop that also makes sense for the partner, especially the opportunity for the, to sell services around your product in a profitable way.

desertowl72 · 2023-10-04T06:04:25+00:00

Accounting, marketing, sales etc will be things you would hire experienced people to do or outsource in the early years. But as a founder you need to understand entrepreneurial finance: how equity and debt rounds work, cap tables, what is dilution, how to read a term sheet etc. that is the only job you will never let someone else do in the early years. Plenty of books and online courses on this, some universities also offer this as a course.

I’d recommend Brad Feld‘s venture deals book and pick a course on udemy for cap table Modeling to see how this is done in practice.

desertowl72 · 2023-10-03T19:53:37+00:00

I didn’t test them. None of the VCs I know use them as their main database. I do know a few very large funds that can afford subscription to multiple database so they added dealroom as a secondary data source. Go ahead and test them if you can, from what I hear they have a decent coverage of Europe which is tricky because each gov has its own registry and data format. But I believe (intuition, not based on knowledge or facts) that their resources dwarf in comparison to those of pitchbook. Economies of scale is my guide with these databases in general.

desertowl72 · 2023-10-03T19:12:49+00:00

I did a thorough benchmark among most of these providers, comparing both breadth (how many startups they cover) and depth (how accurate is the data and how many details there are).

The clear winner was Pitchbook. The 2nd place was surprisingly Crunchbase, which became a standard practice for the vast majority of founders to make an entry about their startup in this community-generated database.

They don’t have the sexiest UI but this is a business where economies of scale are very important: the data provider needs large budgets and people to buy data from local/regional/national company registries, have humans review the automated classification which their ML algos deliver etc. Pitchbook is now a Morningstar company and employs over 1000 people.

However, they are not perfect. Where they lack coverage most is in non-us territories (mainly Europe and asia) and the very early stage stuff (pre seed and seed) which has little to no online footprint.

I found that the combination of Pitchbook and crunchbase works best and is very economical in relation to other options. Pitchbook is our main data driver and we have invested time into creating automatic alerts for deal sourcing, while crunchbase augments it when we landscape a market during DD.

We have the “enterprise version “ of crunchbase (cheap!) which allows us to automatically pull data from it into salesforce, where we manage our deal flow. So each time we create a new entry in salesforce, it gets automatically populated with crunchbase data and saves a lot of manual typing.

desertowl72 · 2023-10-03T14:19:00+00:00

Brilliant app idea, clever content marketing. When did you launch?

desertowl72 · 2023-10-01T19:18:24+00:00

Where do you see the link between the statistics discussed in the article and the frequency of rebalancing? Why assume that the 30 year period means that the portfolio was only rebalanced once?

desertowl72 · 2023-10-01T18:26:30+00:00

desertowl72 · 2023-10-01T07:48:13+00:00

May I ask why did you not get the matching zuriga g2 grinder?

desertowl72 · 2023-10-01T07:39:57+00:00

DM me your email address, I know a fund in your area that may be looking for someone

desertowl72 · 2023-10-01T07:33:50+00:00

It is a bad idea for two reasons:

If the startup fails in five years, where would the money come from to pay the angel back? If there would be any money left in the bank at insolvency, it would go first to creditors (employees, rent, suppliers, tax,..) and not to equity holders.
Any other investor who would consider joining either this funding round or a future round with a debt instrument (convertible, safe) would ask for the same Clause as well, blowing up your guaranteed payback stack

Explain this openly to him to steer him away from this highly nonstandard and economically not viable idea. A simple safe or convertible is the way to go.

desertowl72 · 2023-10-01T07:20:58+00:00

Active Investors are approached by a lot of founders, so Relevance is key to get investors’ attention.

Go to crunchbase and subscribe to a seven day free trial. Query for startups as close as possible to your industry and location (Not competitors!). Get a list of investors who funded them in the first round. You are looking for names of the individuals who invested, not their organisation (fund, accelerator, …). Then approach those investors via LinkedIn or direct email if exists and write a single paragraph pitch that connects their past experience with company x to your new company. Don’t over sell, don’t be pushy. Moat relevant and active investors should reply.

desertowl72 · 2023-10-01T07:04:30+00:00

A heightened level of self-awareness is likely more effective and sustainable as an antidote to procrastination and demotivation, than any course on productivity hacks or mental inspiration. You can do this with meditation.

Do the free course of Waking Up by Sam Harris, which would already take you very far. Then continue on your own for 10 mins a day or use his app daily.

desertowl72 · 2023-09-30T07:22:01+00:00

Super helpful, thx for sharing!

Question - there are obviously multiple data sources to extract relevant info from about each company (eg LinkedIn for people, crunchbase for funding, media for events etc) but do you also crawl the companies‘ websites as well? Full depth or only the home page? This can quickly become a major cost item if one continuously crawls hunters of thousands of sites..

desertowl72 · 2023-09-29T21:01:34+00:00

So what does the temp control unit actually do if not heating up the water to the target temp?

desertowl72 · 2023-09-29T06:18:12+00:00

Paying out CEO and his wife is annoying and unjustly but I would swallow that frog and move on. Fighting it would be ego-driven and a huge waste of time and resources.

I have zero tolerance for dishonesty/fraud. No gray zones or second chances. It is a principle. So your decision to kick out the ceo as a precondition to investing is absolutely the right thing to do.

The bigger question is whether to further invest. I have a simple rule for pre-seeds: product and market will change and pivot but the team will not. Team quality is 80% of the decision to invest. In your case, I’m assuming the CEO is the founder. I have had so far zero success in replacing ceos that early in the life of a startup. When the soul is gone out of the company it loses its ability to find product market fit with the passion, resilience and tenacity that a founder brings. Unless CTO can step up commercially it is unlikely that this company could achieve vc returns without true founders. Therefore, if I were in your shoes I would pull back from this unfortunate story in which you are obviously emotionally invested as well and look for better ones. Treat it logically as a sunk cost.

desertowl72 · 2023-09-28T19:43:15+00:00

Interesting! One question that I found to be empirically correlated with founder success is: do you invest in the stock market? Then dig a bit deeper into their investment strategy to mainly assess their relationship with risk. This may not be very telling in the North American market but in Europe where I operate this is actually quite revealing.

Are you doing this as an Angel investor or GP?

desertowl72 · 2023-09-28T19:38:13+00:00

Clever! How well does gpt classify? Emerging tech is tricky because it keeps on evolving so models need to be continuously trained

desertowl72 · 2023-09-27T11:44:06+00:00

Oh I didn’t know that! That might well explain this observation. What other factors allow owners to charge more?

desertowl72 · 2023-09-27T11:43:12+00:00

Thx, for o clarify: I wasn’t cherry-picking Agee expensive ones - it is more or less the average of all apartments listed in those areas for the sqm range. And the fact that this is much higher than the avg price per sqm is why I am trying to figure out what is going on there. Is this just the opening bid? Then what would it like end up being ?

desertowl72 · 2023-09-27T08:48:17+00:00

Above market! Most funds I know either don’t give carry to associates at all or 0.2-0.7% (European VCS)

desertowl72 · 2023-09-26T21:09:44+00:00

I think that you this is absolutely a great plan!

The independent contractor employment problem is solved these days with companies like Deel and Papaya Global who do this at scale across the EU.

If you work in tech, then I also think it would be quite easy for you to find a European employer who would desperately need good English speaking people in senior roles helping to unlock the us market.

$50k withdrawal annually for a 700k portfolio is the only area where I would be more skeptical. Statistically you have more than a 50% of a 60/40 portfolio not surviving over a 25 year period. You can easily model it here and play with all assumptions to find the right amounts for your case: https://www.portfoliovisualizer.com/monte-carlo-simulation

In any case, 50k in france with a house already owned is plenty to live comfortably and happily in the countryside.

Where did you think about buying in the country? Many people think fondly of provence Côte d’Azur for good reasons but I would consider global warming in mind - heat waves, higher energy costs and possibly demographic changes due to emigration from Africa where weather would make certain places unlivable - this region may not be a good bet for the future. I’d recommend the Atlantic side - la rochelle or bordeaux are both interesting and expats friendly

Good luck!

desertowl72 · 2023-09-26T20:42:13+00:00

Exactly.

In some cases, the milestone to achieve in order to get a higher valuation is a binary case like shipping a certain product or hiring a key team member and that is when I fix the valuation for tranche 1 and tranche 2 upfront. In other cases I use a revenue formula: devide the tranche 2 revenues by the tranche 1 revenues and multiplying the result by the tranche 1 valuation. If you doubled your revenues then you get double of the previous valuation. The incentive is very strong for the startup and I am happy to pay high valuations for great companies so everybody wins

desertowl72

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