The perfect solution to two of the biggest (and most common) pain points in the world of venture
We speak with different investors (angels/ family offices/ VCs/ Institutions) daily, sharing with them research by Hatcher+*, Google Venture and INSEAD researchers. All insights point to the same conclusion — that large portfolio consisting of 500 or more investments deliver stronger, more predictable returns. Surprisingly, many of them share with us that they do know and recognize that. However, amongst the many reasons given on why they are not adhering to this golden rule (of building large portfolios), there were two key reasons that were constantly brought up.
Lack of (quality) deal flow
While many venture investors acknowledge that they do receive many pitches from founders and startups, the main difficulty that comes along is that before an investment is made, there will be a sizeable period and effort needed to do due diligence on these startups — such as the full understanding of both macro and micro aspects of the respective industries and companies, engaging founders to build rapport, combing through large amount of data etc. Yet often, once there are any signs of red flags during the due diligence process, the investments do not go through — lack in quality. Of course, some fund managers are evolving and operating very differently (for example: Tiger Global closed 1.26 deals per business day in Q2), but most fund managers are not at that stage, yet.
Difficulty in managing a large portfolio of investments (difficult to execute operationally)
As most funds, especially VC funds are structured in the form of partnerships, this means that naturally, most of them will not have large numbers of partners and dealmakers as that will bring about a great deal of complexity. The math suggests that due to such partnership structure “constraints”, most funds will struggle to have more a portfolio of more than a hundred (5 partners managing 10 companies, that means a portfolio of 50) which research shows that is highly risky and inadequate as the risk is not diversified away in their fund portfolios (Institutional Investor shows having a portfolio of 100 companies being the absolute minimum). While there are software/technologies in the market that fund managers can use to help them, they usually solve specific pain points and have difficulty “talking”/integrating with each other — as such, most just rely on their most trusted software — Microsoft Excel/Google Sheets.
How does the Hatcher+ VAAST™ (Venture-as-a-Service Technology) platform solves these pain points?
The Hatcher+ VAAST™ (Venture-as-a-Service Technology) platform contains information on over 200,000 private companies and enables powerful, AI-assisted analysis of startup business plans, due diligence automation, standardized investment documentation, and large-scale portfolio management. This award-winning platform, which is available in 18 languages and supports over 50 currencies, is provided free to deal originators around the world, including leading pre-seed and seed-stage VCs and accelerators, enabling access to over 30,000 new startups every year**.
Key feature #1: AI-powered deal-scouting
Our partners are enabled to identify new emerging business opportunities using AI and natural language processing-based algorithms and search for specific business types.
Key feature #2: Support for impact investing
Our impact focused partners are enabled to identify impact-related startups using deep learning-based algorithms and search for specific business types.
Key feature #3: Scalable Process Automation
The VAAST platform includes individual data profiles for startups, cap tables, fundraising campaign management, KPI tracking, and secure data rooms.
Key feature #4: Data-Driven Portfolio Models
Construct venture portfolios using data-driven portfolio models to help deliver robust, index-style returns.
Key feature #5: Real Time Reporting
Our venture partners are enabled to create and manage deal flow and portfolios, automate daily operations (including in-house accelerators), and generate comprehensive stakeholders reports.
- Comprehensive reporting
- Support for multiple funds
- Updated in real-time
Key feature #6: Flexible Investment Structures
We partner with leading fund managers, fund administrators and service providers worldwide, and can introduce investors to a range of tax-efficient investment structures through these partnerships.
Note: Bespoke VCC sub-funds can typically be set up within days at nominal cost, and structured to share carry, as required, with co-managers or advisors. Exchange-tradable structures are supported.
Conclusion
To capitalize on emerging trends that are transforming the venture capital industry, you need a tested and proven partner on your journey. Hatcher+ is a venture-as-a-service company that leverages deep learning, process automation, and global partnerships to enable scalable portfolios and index-style investor returns. Powered by the VAAST platform, there are multiple ways that we can collaborate, and we invite you to schedule a demo with us for seeing, is believing.
References and notes
*Hatcher+ has analyzed over 600,000 venture transactions spanning 20 years of venture investment and constructed over 4 billion virtual VC portfolios, spanning all geographies, sectors, and stages — key research findings and insights:
· Venture returns don’t follow a normal distribution curve — venture returns display power curve characteristics
· Power curve events occur infrequently — just 1 in 100 venture-backed seed-stage companies (1%) will achieve a $1b+ (unicorn) exit (CB Insights)
· Early-stage investors typically invest in 1% of applicants = the odds of a startup becoming a unicorn are 1/10,000
· In addition to generating strong returns, creation of a large, early-stage portfolio allows investors to lock up valuable pro-rata rights and guarantee access to later-stage rounds.
· Investing in the four earliest stages of a startup’s lifecycle can generate significantly higher IRRs and exit multiples for investors, versus the multiples available to later-
stage investors.
**Hatcher+ enjoys unparalleled access to over 30,000 early-stage deals per year via its proprietary global network of early-stage investors, angel groups, and accelerators.
***Several emerging trends are currently transforming the venture capital industry:
1. New capital is flooding into early-stage ecosystems as investors seek to replicate the large-scale, seed-to-IPO strategies adopted by Tiger Global, Softbank, and A2Z.
2. Investors are investing earlier (at seed stage) with the objective of locking up pro-rata rights for later rounds (including highly sought-after pre-IPO rounds).
As access to deal flow tightens and deal execution timeframes compress, AI-powered scouting, process automation, and access to large-scale global deal networks will become critical to success.
