Technology is developing rapidly across the business world. It has been particularly influential in the field of venture capital, where it has made it easier for VC firms to vet candidate companies and provide expert help when they need it.
Suraj Rajwani, a venture capitalist and leader of DoubleRock shares seven new technologies helping venture capitalists do their jobs more accurately and efficiently.
1. Cloud Computing
Amazon Web Services and other cloud computing firms have made an outsized impact on venture capital. Since companies pay for the resources of AWS as they go along, they can create new apps with no monetary investment. Founders’ costs are only their salary and the cost of hiring people to create a minimum viable product. According to Suraj Kumar Rajwani, this means that the cost of making a new product has shrunk from the millions of dollars to the hundreds of thousands.
There are scores of companies that have benefited from the rise of AWS and other cloud computing applications. These companies include Slack, Airbnb, Slack, and Lyft.
2. Better Research Capabilities
Cloud computing also makes it much easier for VC firms to analyze companies before investing. Using cloud computing infrastructure, VC firms can do a deep dive into the inner workings of the companies they are considering and draw up a complete picture of their financials. Having such a laser-focused way to analyze prospective clients provides a major advantage for venture capital firms.
3. Analytics and Data Science
Venture capital firms can now analyze their target companies using the same tools that the companies use to get their jobs done. Using sophisticated analysis methods, venture capital firms can use the same means their clients use to determine the criteria for supporting these companies. Venture capital firms can use advanced analytics to determine a company’s profit potential, to judge how their financials stack up against the competition, and how they may be projected to perform in the future.
4. Understanding Companies’ Field of Business
While most venture capital firms’ decision-makers are well-versed in the business areas practiced by the companies in which they invest, they can do complete research into the inner workings of their target clients.
Before investing, it is prudent to understand the complete picture of how a company works and why it would make a good investment. Overlooking salient points may mean that a venture capital firm may miss an inherent weakness in the company and lose its investment.
5. Psychological Analysis
Through technology usage, venture capital firms can perform analyses of their target clients’ business psychology. Psychology is one of the pillars of business decision-making because human behavior follows certain established rules. Understanding company executives and the drives by which they are motivated can provide an important window into the performance of early-stage and startup companies.
6. Understanding of Technical Requirements
Venture capital firms should hire people who have a good grasp of what their target companies are about. Technological tools can help venture capitalists understand how they work and how their business plans could be profitable. Analysts working for the venture capital companies provide breakdowns of the resources they will need to maximize their potential.
7. Screening Pitches
Technology can help venture capital firms screen their applicants. By judging how viable an idea may be using technological databases, venture capital firms can judge how the company may perform on the open market. Innovation is key in answering a new market pain point that has become prominent in recent months and years.
Venture capital firms may wish to exclude companies, for example, that won no funding from angel investors. Angel investors are more risk-tolerant than standard venture capital firms because they tend to have large reserves of their own money on hand. If they turn a company down, there is likely something fundamentally wrong with the business’s operations.
Choosing the Best Companies for Investment
Technological advances have made it possible for venture capital firms to choose the best possible vehicles for their investment. Without technology, venture capital firms would be restricted to conjecture and hunches about the prospects of a given company. Gaining information about a new company is far easier with the use of technology. Companies looking for venture capital funding need to disclose all of their most pertinent information to gain investors.
Understanding How Venture Capital and Technology Work Together
In today’s fast-paced business world, technology greatly speeds up transactions and makes them more predictable. Suraj Rajwani states that venture capitalists who use today’s newest technologies will be caught unaware of a company’s problems far less often and will support the company to attain success.
