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June 6, 2020
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Business Tech

Intuition vs Data: Investment Opportunities Evaluation for Venture Capital Investors

Artificial intelligence (AI)-powered innovations have been made possible with the accumulation of data and faster computing power that has developed over the past few years, taking industries to a new level, especially in the world of venture capitalist (VC) as VCs heavily depends on data to investment opportunities.

PitchBook conducted a survey of 391 VC investors across Asia, Europe, and the US. The Seattle based data provider for private and public equity markets. The survey showed that global VC investors leverage data in order to inform investment decisions and plans for adopting machine learning that can bring benefits to future decision making.

The survey found that to source and evaluate investments, investors rely on a mix of data and personal networks. 86 percent of respondents understood the importance of data for evaluating opportunities for investments. Late stage VC investors in Asia and the US are likely to leverage data in order to inform all decisions regarding investment.

$24.6 billion was invested in machine learning and AI category. More than 85 percent of the respondents in the survey still believed that some element of intuition will be needed in VC dealmaking.

38 percent of the respondents use data to source all venture capital investments and 48 percent of data is involved in investment decisions, while nine percent don’t find leverage from data. 50 percent of late stage VCs find data very important and uses it as the primary evaluation resource as well as all investment source. 46 percent of firms in Asia regard data the same way, meanwhile, the number shows 37 percent in US firms and 33 percent in Europe.

The most valuable resource for sourcing and evaluating investment opportunities is still personal network, as the survey showed 82 percent and followed by inbound leads at 44 percent. Angel and early stage VCs tend to lean more on personal networks for making decisions regarding investment compared to late stage VC and corporate venture capital as the survey showed 20 percent of the responses in this category.

Personal networks is the top resource for sourcing and evaluation deals and VCs in Asia most likely will group to leverage data for this purpose. According to the survey, 20 percent of respondents from Asia answered that citing financial databases as the most valuable resource. Meanwhile in the US and France, the results showed 15 percent and 10 percent respectively.

Leveraging data is often used for financial modeling, refining investment thesis, and sourcing investments. Meanwhile, the reasons why some VCs don’t use data leveraging are disagreement on terms, insufficient data, and slow decision making.

It can be seen clearly that Asia based VCs’ interests obviously lie in data and technology driven approach to VC, with almost half of Asian firms expressed how important data is to their decision making process, meanwhile it is only 37 percent in US firms and 33 percent in Europe. Even more, Asian investors had the highest percentage when it comes to machine learning adoption with 29 percent using AI in making decisions.

However, experts concluded that there’s no guarantee that this approach will become a competitive advantage for VCs in Asia.

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