Venture Analytics
Venture Analytics applies intelligent computing techniques to the Venture Capital (Private Equity) domain. The early-stage Venture Capital (VC) industry has been largely unaffected by the 'analytics' revolution in the Financial Services Industry, and later-stage VCs use analytic methods that typically do not benefit from the latest Intelligent Systems techniques.
Investment portfolio optimisation and investment risk management.
Investing in early-stage high-tech start-ups is similar to investing in the equities market, but with several challenging differences:
- the shares of early-stage high-tech start-ups are not actively traded on a market, and so establishing the current price/value of a particular investment is difficult;
- early-stage high-tech start-ups are considerably riskier investments than most equities, though arguably similar in risk profile to "penny shares".
- start-ups are highly illiquid, non-fungible investments - it can be difficult or impossible to "trade" an investment in a start-up, and investment decisions are more coarse-grained than with equities portfolios;
- unlike trading in equities, an investor in a start-up has, and is permitted to use, inside knowledge of the company to determine whether to continue with further investment or to cease further investment.
Despite the differences, both start-up portfolios and equity portfolios require careful assessment and continuous monitoring of both value and risk. The techniques that are currently applied to equity portfolio optimisation can be co-opted to apply to start-up portfolio optimisation.
Market and investment forecasting.
Equities market analysis includes the analysis of the predicted growth of quoted companies and predicted share prices and dividends. This requires the analyst to forecast the state of the markets and the economy. A similar analysis is undertaken by Venture Capital funds (VCs) when they decide what types of start-up are worthy of investment. The difference, however, is that (i) VCs must make longer-term commitments, with no or little opportunity to sell out of a position, and (ii) start-ups are generally riskier instruments than standard equities (though see above re "penny shares"). However, the underlying market and investment forecasting is similar to that undertaken in equities analysis.
Automated evaluation of business proposals.
Early-stage Venture Capital firms struggle to assess thoroughly each of the many start-up proposals they receive. The statistics are daunting: a venture capitalist finances only 6 out of every 1,000 business plans received each year. The chances are 6 in a million that an idea for a high-tech business eventually becomes a successful company that goes public. Fewer than 20 percent of the funded start-ups go public. Business plans are typically poor and are not well received by venture capitalists. The 10 percent of start-ups that succeed compensate for the other 90 percent of the poorer performing companies in the venture capitalist's investment portfolio. Hence many venture capitalists in Europe consider early stage investment uneconomic. The VC trends are: a) specialisation of venture capitalists will continue - biotech, electronics and other segments of industry and technology, b) business plan screening by VCs will become increasingly tight, c) extra caution by VCs will require entrepreneurs to be even better prepared. Automatic evaluation of business proposals can help both the VC and the entrepreneur.