A VC That Uses AI to Find Startups to Invest In
Over the years we’ve found many companies out there that really want to tell their story but don’t know the best way to do that. What they usually end up doing is paying some PR firm who will then cold call us asking if we want “a pitch,” and we then tell them to pack sand unless they’re willing to give us some of those fees they’re charging their clients. On the other hand, founders or senior management who contact us wanting to tell a story will always be given a warm welcome. There’s no need for a middlewoman (most PR people who reach out to us are ladies for whatever reason) so let’s just do away with that unnecessary cost layer going forward.
Then, we come across companies that don’t really care. Why? Because they’re too busy kicking ass and taking names to care about who knows their story. We’ll often find these companies when we do a bit of “networking” with startup founders and VCs who tell us we ought to check out so-and-so’s company which we wouldn’t have found otherwise because they’re not in Crunchbase. (For better or for worse, we’re stuck with using Crunchbase for a lot of our company searches because we can’t afford CB Insight’s pricey but incredibly excellent database.) When we do find interesting startups that aren’t in Crunchbase, or that haven’t been proactively looking for media attention, the first thing they always ask is “how did you find us?” That’s exactly the same sort of reception that Insight Ventures has when they knock on someone’s door because an AI algorithm told them to.
A VC That Uses AI to Find Startups
Founded in 2015, InReach Ventures is a venture capital firm that’s been spending the past four years doing some entrepreneurship work of their own. They’ve been building a proprietary software solution (known as DIG) to discover promising startups across Europe that may have not even taken in any institutional money. Not only have they already invested in at least 11 European startups, but they just raised another €53 million ($60.1 million USD) in funding to identify even more promising investments. “In most cases we will be the first institutional investor with an initial cheque size of between €500K ($567,000 USD) and €2m ($2.27 million USD),” says the firm that, as of December 2017, had used their platform to identify 95,000 different startups across Europe.
Remember when we talked about the Johari window and Chinese AI? You can learn a lot about what someone says about themselves. We’ll extend that and say that you can learn a lot about an AI algorithm based on what startups it thinks you ought to invest in. Let’s take a look at some of the startups that InReach Ventures has invested in.
Prototyping as a Service
Founded in 2013 as a side project, London startup Marvel has taken in $8 million in funding to build an app that helps its users do prototyping and create wireframes for apps or websites. It’s a design tool used by more than 2 million users offered under a “freemium” model which means you need to subscribe to unlock additional features. Businesses like this look at “run rate” metrics which means that if 10% of their users pay an average of $20 a month to use the app, that means they would generate a fairly predictable $48 million in revenues a year. Over 100,000 organizations use the tool including 75% of Fortune 100 companies.
Gimme The Loots
Founded in 2016, Berlin startup Loots has taken in an undisclosed amount of funding to monetize live streaming. For those of you not in the loop because you’re too busy working, there are a bunch of people out there who are smarter than you because they get paid to play games for a living and – get this – thousands of other people watch them play those games for reasons we can’t discern. All those eyeballs can be monetized, and that’s what Loots does.
Loots helps broadcasters on many live streaming platforms worldwide to monetize their live content and works with some of the most valuable gaming brands out there.
Making Dropshipping Easier
This next startup, Oberlo, was acquired by Shopify for $15 million so they represent a successful exit for InReach. This Lithuanian startup was flying under the radar and working on something called “dropshipping” which used to be – and perhaps to some extent, still is – all the rage with people who think it’s an easy business to get into and make millions when in fact it’s tough as nails and far more work than most people are willing to commit to doing. Oberlo was making it a whole lot easier for dropshippers to import products which were a lot of the hassle with setting up shop as a dropshipper. Of course, since Shopify makes a popular platform used for dropshipping, the acquisition made a whole lot of sense.
Surveys as a Service
If you’ve ever seen a survey pop up on your phone in place of an add, that might have been our next firm. Founded in 2010, London startup Qriously Technologies has taken in $6.2 million in funding to develop a tool for measuring real-time public sentiment for specific locations on 1.4 billion devices worldwide. For example, they correctly predicted many of the swing states in the U.S. election and were the only firm to correctly predict Brexit which put them on the map and made punters everywhere think about some creative ways this tool might be used.
We’re not sure who all these people are that just fill out surveys for no reason at all but the tool works well enough to be used by big names like Heineken, Uber, Airbnb, and Vodafone.
From Finland to New Yawk
Founded in 2015, startup Kontena lists themselves as being from New York but a look at the team shows an unusually large number of people from Finland. (Startups always want to be seen as being from ‘Murica until you publish a list of the top startups from Finland and then suddenly they’re all about their Finnish roots.) At any rate, they’ve done well for themselves having raised an undisclosed amount of money to “create the most easy to use tools for containerization,” something we talked about in our article on What is Docker? A Layman’s Explanation. Their solution is being used by hundreds of start-ups and software development teams working for some of the biggest enterprises in the world.
Reinventing Online Returns
We first came across Returnly in our article on 8 POS Payment Technology Startups to Check Out where we talked about how this
Spanish Silicon Valley firm is changing the way returns are handled by offering an “Instant Refund” system that turns product returns into instant cash for repurchases. The company figured out that people like the instant refund arrangement and it makes them more likely to make another purchase right after receiving it. Just last month, they raised another round of $8 million bringing their total funding to $11.2 million so far. According to an article by Venture Beat that talked about this latest round, Returnly now has a $300 million credit line to handle returns and has processed $100 million in returns so far.
Update 04/17/19: Returnly has raised $19 million in Series B funding to help retailers compete against Amazon by growing its merchant services and expanding its product offering. This brings the company’s total funding to $30.2 million to date.
Professional CAD on an iPad
How do you know if someone’s an Apple user? They’ll tell you. And it also means they’ll be able to use Shapr3D, a professional CAD program made for the iPad and Apple Pencil. Founded in 2015, Budapest startup has taken in $1.3 million in funding to build the world’s first professional 3D CAD to run on an iPad Pro giving Apple users just one more thing to drone on about.
Unlimited usage of the tool requires a subscription, and we’re starting to see a preference emerging where the algorithms – and the clever VCs behind them – prefer subscription-based businesses.
Managing Employee Spending
Employee spending is a topic we’ve touched on before, and more than 40,000 businesses use the solution provided by our next startup. Founded in 2015, London startup Soldo has taken in $22.2 million in funding to develop a “multi-user expense account featuring Mastercard cards, intuitive admin and effortless reporting.” Soldo features the world’s first complete expense integration with Xero – a tool we use here at Nanalyze – and based on their focus on cutting out unnecessary costs, it’s something small businesses would gravitate towards.
Update 07/02/19: Soldo has raised $61 million in Series B funding to fund further growth. The company also plans to enter new European markets and double its workforce over the next 12 months. This brings the company’s total funding to $83.2 million to date.
Another common theme we’re seeing here? All these startups have some serious traction and don’t need to spend time trying to get their story out so people know about their brilliant solution and then can think about buying it. All these product offerings seem to be selling themselves.
Putting the Customer First
Originally out of Sweden, our next startup is so busy executing that they couldn’t even be asked to put the most basic information in Crunchbase. Fortunately, the company was nice enough to reach out and tell us about how they’re using AI to build a search mechanism that enables customer support & success teams to find team conversations, customer interactions, knowledgebase articles, and more – all from one place. We’ve worked in “client service” before, and nothing sucks worse than waiting for John in Mumbai to get back to you on the status of a Jira while the client gets increasingly antsy. Traitly says that about 40% of incoming support queries require searching through multiple platforms or input from a colleague (that number is probably higher for more sophisticated clients, usually the ones paying you the most money) and their solution is working towards eliminating this problem.
A Tutoring Platform
Founded in 2015, Sheffield U.K. startup Tutorful has taken in around $1.83 million to develop a platform that connects students with tutors across the U.K. with the focus being on providing quality tutors that are ranked by the students. They’re also working with Pearson, one of the world’s largest education publishers, to develop a “Tutors’ Guild series” of tutor packs which should provide another income stream in addition to what they charge students – a platform fee of between 15% and 25% of the lesson cost.
There were an estimated 1.2 trillion photographs taken last year, and our next startup thinks that number has some room to grow. Founded in 2012, Swedish startup YouPic has taken in $2.8 million in funding to help you take the world’s best photos – and make money off of them. They’ve attached an element of gamification to the platform – the more you engage, the more you level up – and are also looking at integrating blockchain into photo management to provide some structure around how photos are used and how the creators get compensated.
The company makes money from selling subscriptions that will give you access to training courses and allow you to store all your photos on the platform where they will give you increased exposure and potentially earn you money.
CB Insights has been using all their big data to develop a unicorn predictor that they recently said VCs have been showing quite a bit of interest in. Another venture capital firm we talked about before, SignalFire, also uses machine learning to find investments. While we’d like to think that all this hints at a future where an AI algorithm just makes all our investment decisions for us, that’s just not how it works. We don’t want to imply that’s how InReach Ventures operates either, as they spend a fair amount of time doing their own due diligence once their algorithms identify promising startups. This does go to show how artificial intelligence is increasingly being used to make investment decisions of all kinds, across all areas of finance, from commodities to stock trading, to venture capital.
Here at Nanalyze, we hold the lion's share of our investing dollars in a portfolio of 30 dividend growth stocks. Find out which ones in the Quantigence report freely available to Nanalyze subscribers.