Nowadays, many VCs are becoming data-driven. They use startup digital footprints both to find investment opportunities and gain insights into their business. In a previous article, we discussed how to treat fundraising as a B2B sales process with a focus on cold contacting VCs. Another aspect of B2B sales is generating inbound leads. It involves investing in SEO optimization, PR, and listing products in industry catalogs like G2 and Capterra. In this article, we will explore the main services and approaches VCs use to detect interesting investment opportunities early on and explain how founders can leverage this to generate incoming contacts from investors.
LinkedIn data-driven insights
Among other use cases, VCs employ LinkedIn as a valuable resource to gather information about startups and their co-founders. It provides up-to-date information about a startup's growth, hiring, and other important details. Founders should regularly update their personal and corporate LinkedIn profiles to increase their chances of receiving inbound calls from investors. Some data-driven investors develop their own parcers. Others use third party datasources like harmonic.ai, where Linkedin information is already well structured and prepared for further analysis by investment professionals. In a previous article, we discussed how one can use LinkedIn to assess the size and dynamics of a business.
Let’s discuss other information that investors pay attention to:
- Investors thoroughly examine co-founder profiles. They take into account their previous background, fundraising and exit experiences, C-level management roles, industry expertise, and whether they have worked for top companies or unicorns, or graduated from top universities. At I2BF, for example, we use these parameters to cluster startups based on the experience of their co-founders. While it is important not to make up profiles to attract investor attention, founders should regularly review and update their own profiles and those of their co-founders and senior executives.
- VCs also pay close attention to the dynamics of a company's headcount. They analyze factors such as the current headcount, its growth over the past 6 months, founding date, and previous funding rounds to gauge whether it is the right time to approach a startup. For example, a typical US seed startup would be less than 2 years old, have a headcount of 10-20 employees, and have received funding 6-12 months ago or have been bootstrapped. It is crucial to ensure that all employees have listed the startup as their current job and that Crunchbase has accurate information about your funding rounds.
- VCs use Corporate LinkedIn profiles to determine if a startup aligns with their investment mandates in terms of geographic location and business model. It is important to have a concise and clear company description with a link to the corporate website. Additionally, the Industry and Specialities fields should have proper tags, and the headquarters should be located in the country where the business is being built.
- Some VCs also consider the number of LinkedIn and Twitter followers as an indication of a startup's loyal audience. Fortunately, building a loyal audience is beneficial for marketing products and services to potential clients. There is no need to optimize specifically for fundraising purposes.
Startup Databases
Investors typically use one of the startup databases such as Crunchbase, CBInsights, Pitchbook, Tracxn, or Dealroom. All these services gather information from your LinkedIn, website, other social media, press releases, and various resources to provide VCs with comprehensive information in one place. In most cases, those services will automaticall create your company page. You have also the option to take the lead and create it yourself, filling it with the relevant information. You can also make edits to the auto-populated information. Some data-driven VCs retrieve this data through API to employ their algorithms. Others simply read the company page when assessing potential leads. Listing in these databases is the opportunity to be featured in niche industry reports and startup lists.
Here are the main areas of interest for investors:
- A concise and detailed company description, including industry and headquarters location, helps VCs better understand and update their list of startups that align with their investment mandate.
- Previous funding and financials provide insights into the startup's investment stage and its openness to fundraising.
- The current investor section indicates if top VCs, business angels, and accelerators have backed your company.
- The people section helps identify and analyze LinkedIn profiles of the founders and senior managers.
- Website and social media links allow for quick access to relevant resources.
- While not mandatory, providing your email and contact information makes it easier for VCs to reach out to you, compared to specific email parsing services.
- Some startup databases offer additional information on competitors, cap table, or exit multiples, which VCs typically use for due diligence.
Other services for data-driven VCs
At I2BF, we continuously experiment with new data sources for our deal sourcing and due diligence. Here are a few ideas that you can also consider:
- Similarweb provides insights into website visit dynamics. It can be valuable in combination with headcount growth and funding to gain a better understanding of startup progress.
- VCs typically use G2 and Capterra for competitor analysis and accessing customer reviews.
- Glassdoor provides insights into management and hiring practices, both for the current and previous startups of the co-founders.
We hope this article helps startup founders understand how to gain more visibility among investors without spending a lot on PR. We also hope it provides ideas to our fellow data-driven VCs. If you have any questions or develop a new data source for VCs, please reach out to me at dkalyshkin@i2bf.com, I will be happy to talk more.