How to ensure your venture capital firm has the right database
April 18, 2017
From raising a fund to exiting a portfolio—VCs need solid instincts and reliable data. But if you’re a VC, how do you know your data is as good as it can be? Is your database really the best option out there?
To help you answer these questions, we created a guide that walks through how to identify the datasets and features you need, evaluate data providers and pick the best database for your firm.
Inside, you’ll find:
• Insights on the current state of venture capital • Why more venture activity means greater risk • How investors can stay competitive as the industry changes • Benefits of comprehensive data at every stage of a fund • How to identify your firm’s needs • Tools to help you evaluate databases
Read the guide below to make sure you’re getting the best data.
Choosing success Data solutions for venture capital firms Enhanced market intelligence for better results S E AT T L E NEW YORK LONDON pitchbookcom US 1 2066231986 UK 44 02071909809 demopitchbookcom Contents Winning the race for the best market intelligence 3 The changing VC marketplace 4 Increased activity means greater risk 5 How to stay competitive as VC evolves 6 The benefits of better data at every stage of a fund 8 Workbook Finding the best database for your firm 9 The best market intelligence is on the PitchBook Platform 16 What PitchBook tracks 17 About PitchBook 19 PG 2 From opening your fund to exiting your portfolio you rely on your instinct to make decisions every day But in todays complex venture industry accurate data is essential to validate and inform your intuition With comprehensive information on every aspect of the private markets you can fundraise faster invest smarter and exit stronger There are many data providers and it can be challenging to choose a database This guide walks you through how to identify your needs evaluate databases and pick the best one for your firm PG 3 The changing VC marketplace Rapid market changes are escalating risk The volume of earlystage deals is still growing and the total capital invested is greater than ever Throughout 2016 investors deployed more than 69 billion into the US venture ecosystem representing the secondbiggest annual totalafter 2015in the past 13 years An increasingly crowded field There are new entities getting involved in VC from private equity firms to strategic acquirers to mutual funds With record amounts of cash on corporate balance sheets and significant dry powder in PE funds its likely that the race for the best investments in venture rounds will continue to intensify Understanding competitors and monitoring their activities can help clarify your own decisions In 2016 While todays VC industry is thriving it is also becoming more complex Valuations are trending in different ways moving steadily higher Greater amounts of capital are being raised relative to recent vintage years while the average timetoclose for a fund is 18 months 2500 nonVC investors participated in VC rounds global 13 of VC deals involved corporate investors global PG 4 Increasing market volume deal size Increased activity means greater risk What does it take to compete against firms that have more resources than yours How can you avoid costly mistakes when pricing a deal To be successful VC investors need to match the level of scrutiny that other firms can devote to deal analysis Opportunities are increasing There are more technology companies entering the market than ever To spot quality companies and evaluate the potential of brandnew industries investors need trustworthy relevant intelligence without delay Higher valuations narrow your margin for error It is essential to be able to trust the accuracy and completeness of your data due to the high cost of even a slightly inaccurate valuation For the past few years valuations have been climbing rapidly higher stabilizing at the beginning of 2017 On a large deal a valuation that is off just 1 can mean hundreds of thousands if not millions of dollars of lost returns Source PitchBook PG 5 How to stay competitive as VC evolves What do VCs gain from highquality data When you have a powerful database that supports your unique investment strategy youll gain the ability to Discover new opportunities Fundraise faster Create custom benchmarks Source promising investments Build better comps Improve your chances of success Fast accurate analysis drives solid returns To gain better insight and reduce their exposure on these deals investors are turning to new sources of market intelligence While most VC investors maintain at least one inhouse database to track this information it takes substantial time and effort to verify secure maintain and analyze these records Using a deep reliable database has given some firms a competitive advantage A high percentage of VC funds are now reaching their investment goals PG 6 We need deep accurate timely information on venture capital to drive our business Kevin Ford Partner Ventura Partners PG 7 When you have the most current relevant market data at hand you and your team can make investment decisions faster easier and with more confidence raisin d n g Fu mpany g o ro C h wt The benefits of better data at every stage of a fund E xiti n g In v e s ti n g PG 8 Finding the best database for your firm Once you have decided to consider a new database take the time to clearly define your needs and get buyin from everyone who will be using the system Start by choosing an evaluation team and document how things are done now Then identify the business processes that can benefit the most from more accessible comprehensive data Workbook PG 9 1 Get prepared Identify your nonnegotiable database requirements and assess your internal status A Select system evaluation team Include analysts managing directors staff and partners B Document current structureworkflow and metrics Ideas Process times data sources number of deals month number of associates and other people who access data costs of existing datasets reliability of data and accessibility of data mobile etc C Hold discussions with stakeholders Ideas Interviews observation documentation and surveys D Compile the requirements list Conduct needs assessments to determine requirements E Identify key use cases and problems F Finalize requirements Circulate internally and get approvals early in the process Workbook PG 10 2 Document the current state Understand your existing processes Ease of use Q How comfortable is your team with your database How many people use it and how often How easy is it to use Speed Q How long does it take to determine which companies you should invest in Automation Q What tasks in your existing research process require human attention or validation Interconnectivity Q Can you see fund and investor data in the same place as VC deal and private company information Customization Q Does your database enable you to create custom benchmarks to measure fund performance Timeliness Q How do you keep up with the activity of competitors companies and investors Workbook PG 11 3 Conduct initial research Identify the options There are many databases that are helpful to VC activity Your colleagues are an excellent source of leads and references for investment database vendors Use online resources to compile a current list from industry news outlets to discussion boards like Quora Once you have agreed on the parameters it is time to get in touch with potential vendors Check online reviews Visit discussion boards Hold internal conversations View demos and sign up for trials As you seek to understand the different database solutions start by reaching out for an introduction or demo Once you have enough basic information to know that you would be comfortable working with a vendor you may continue meeting with an individual company talk to a small circle of top candidates or publish a formal Request for Proposal Workbook PG 12 4 Evaluate the options Score the different databases based on the qualities most important to your team Identify points of integration and process change and check the quality of the data The vendor Q How many years has the vendor been in business Q How many clientscustomers use this database The database Q What datasets are included Where do they originate Q How many funds companies LPs commitments financing events service providers and individuals are listed Q How much private market and global market data is available Q Does it include nonfinancial information like social media followers and website traffic Q Is fund data connected to deal coverage Q Does it identify different types of financing rounds Q How often is each type of data refreshed Q Does it cover VC deals from seed rounds to exit Q How is data accuracy maintained and verified Q Does it cover licensing deals Angel investor and syndicate financing Q How many people manually check the data Q Does it include pre and postmoney valuations EBITDA and revenue multiples cap tables and series terms Q What is the process for submitting errors Q What security is in place for data and users Q Does it include data on funds fund performance returns limited partners and advisors Workbook PG 13 Verify the data available Yes No Dataset Premoney valuations Postmoney valuations Cap tables Series terms Voting rights Q What search functions exist Segment by industry geography etc Save searches Share searches Q Can you see data from the full investment cycle at a glance Q What is the process to pull data for comps Deal multiples Q Is there mobile access Nonfinancial metrics like social media followers and website traffic Industry analysis and additional services Dry powder Q How are pre and postmoney valuations calculated Cash flow multiples Q Are original industry reports provided IRR Q What related services are provided such as custom research Initial and ongoing costs and fees The user interface and accessibility Q What features are in place Separate logins Integration points Customization options Ability to export Deal flow reports Missed deal reports Setup and ongoing Training expenses Ongoing contact with vendor and community Q What kind of customer support is offered Q How long does training take Q How often does the vendor release updates How are they announced Q Are customer references and peer support available Workbook PG 14 5 6 Choose your new database Prepare for process change Estimate the benefits Ask the evaluation team to be internal ambassadors To quantitatively evaluate the costbenefit ratio of each solution devise metrics to calculate the expected ROI of the purchase Use the previous sections to determine your firms priorities and organize them into a scorecard Once you have decided on a database get the most from it by evangelizing it within your firm The evaluati