The future of data-driven investing

VC investment decisions have traditionally been based on exhaustive research, personal networks, and gut intuition. 

But technology has reshaped the investment landscape, fueling the rise of data-driven investing. From the application of unique datasets to custom scoring algorithms and AI-powered data warehouses, data is playing an increasingly important role for VCs. 

In this article, we’ll dive into the role of data in investment decisions and how relationship data helps VCs get a better understanding of their networks so they can thrive in today’s market.

Key takeaways

• From deal sourcing to portfolio management, data-driven investing is playing a larger role in VC investment strategies.
• Relationship intelligence and connecting a firm’s collective network are critical components to building high-quality deal flow. 
• Affinity’s relationship intelligence platform enables investors to make data-driven investment decisions at scale by automating data capture and using this information to surface paths of warm introduction.

What is data-driven investing?

Data-driven investing is the process of using data analytics and insights to make faster, smarter deal decisions. Using a combination of proprietary and publicly available insights, data-driven investing allows VCs to improve sourcing, win investment opportunities, and create more value for portfolio companies. 

What role does relationship intelligence play in data-driven investing?

Relationship intelligence is a category of insights about an organization’s shared business network. It takes a firm’s communication data (i.e. emails, calendars, and more) and turns it into real-time, actionable insights that can be used to find, manage, and close deals.

Relationship insights help firms better understand who is connected to potential opportunities in the pipeline so they can be more data-driven in their relationship management and investment decision-making. Investors that tap into these insights can increase their deal flow by 25% and save over 200 hours each year by automating contact and deal data entry.

The importance of data-driven sourcing 

Data has become a driving force in VC sourcing strategies. According to an Affinity study, 76% of respondents said they rely on at least four data sources when evaluating prospects. 

In a webinar with TechCrunch, we spoke with VCs, Bessemer Ventures’ Sakib Dadi, Alpha Partners’ Brian Smiga, and Parikshit Sharma of SOSV’s IndieBio to better understand how they incorporate relationship intelligence in their data-driven deal strategy. 

Building a tech stack for data-driven sourcing

From growth metrics to relationship insights, a data-driven sourcing strategy relies on an immense amount of data. When dealmakers are saddled with data capture and analytics, it prevents them from spending time on the things that make the biggest impact—like building relationships. 

Automations, AI, and other data-first technology, such as Affinity, removes the data burden from dealmakers. Rather, it allows them to use data-driven insights effectively in their deal sourcing and relationship building. “I use Affinity as a second brain to store all those nodes and edges […] because I was always overwhelmed with the number of people I meet on a day-to-day basis,” shares Sharma.

Developing objective scoring and data systems

Data is only as valuable as the insights extrapolated from it. “I think it's important to have your own proprietary scoring mechanism,” says Smiga on making use of larger datasets in sourcing. Custom fields in Affinity make it possible to add custom scores in order to effectively identify the highest-value opportunities.

But scoring shouldn’t be purely quantitative, according to Dadi. “We’re not just outputting a score, but we’re applying our own investor expertise in a particular space to really understand signal from noise in the data.”

Monitoring sustainable growth metrics

Recognizing growth trends in the data across companies and industries—whether that’s activity on GitHub or changes in valuation—is critical to understanding market behaviors and identifying high-potential investment opportunities. Especially when they deviate from conventional models. “We have found that companies that cash efficiently grow over multiple years at greater than 50%, it's a flywheel,” offers Smiga as an example. “Even if it's not an ARR business.” 

Using data to build and manage networks for better deal sourcing

Even in traditionally qualitative areas of VC deal sourcing, like network building, data can be an advantage for driving high-quality deals. 

Revisiting the role of relationship intelligence

Venture capital is undoubtedly a relationship-driven industry. “It is a lot more about relationship management, vendor management, and ecosystem management at our stage because the companies are so early and young,” agrees Sharma.

“We should be constantly asking the smartest people in the room, ‘Who else should we be talking to?’ ‘What should we be looking at? [...] We can't forget that the curated data that comes out of the brains of our peers is really really valuable, and we need to figure out how to capture that back into our CRM so the whole team can utilize it” - Brian Smiga, Alpha Partners

Relationship intelligence tools help VC firms like Bessemer Ventures build broader networks that lead to quality deal flow, shares Dadi. “[Affinity gets us] in front of those types of founders where there might be something net-new on the horizon, in a way that we didn't have the visibility into before.” 

Connecting networks across firms

With the vast majority of deals coming from contacts within a VC’s network, deal flow is directly attributed to the quality of your network. Every interaction can impact deal success, making it important to understand and take advantage of your firm’s collective network. 

“You need a way to capture all the vibrant communication that’s happening in [your] network,” advises Sharma. Only then can you identify opportunities that need attention, determine the right time to follow up, and prioritize the actions that move deals forward. When it comes to deal sourcing, Sharma also suggests that your personal and firm’s network can be used to create somewhat of a regression analysis that enables you to understand opportunities with the highest growth potential.

Reflecting on relationship intelligence, Smiga offers, “tools like Affinity make [new connections] completely open across the whole team so everyone's in the boat and everyone can benefit from everyone else's relationship.” 

Portfolio management in the current economic climate

The role of data in investment goes beyond initial deals. The right data can be used to elevate portcos, manage investor relations, and maximize portfolio success.

Long-term business building

Focus on building strong, resilient businesses instead of chasing short-term growth. “Venture and growth equity have outperformed all other private asset classes over 20 years,” Smiga encourages.

Use internal and external data from platforms to help founders minimize reliance on future funding—and transition from burning cash to becoming cashflow neutral or even cashflow positive.

Keeping communication clear

Experts expect 2025 to be one of the biggest years in venture investment since 2022. But volatile macroeconomic environments can shift risk appetites, making it trickier for startups in certain industries to raise funds. Clear and transparent communication between founders and investors can help mitigate risks.

“As investors in deep tech, you have to really support a team to de-risk as much as possible and take out the R&D risk as much as possible,” says Sharma. It’s about partnership and collaboration. “We have to support leaders in communicating what they're building because these technologies are, by definition, very new. And we're bringing new technologies to old markets. It’s a matter of communication most of the time.”

Capital formation and networking

VCs play a unique role in driving portco success. They generate additional value by effectively expanding founders’ networks and connecting them with follow-on capital.

“​​We're constantly trying to make one introduction every time we're on a call with somebody, just as a good habit,” shares Brian. “And then in Affinity, we actually track bilateral introductions going in both directions and that's another indicator.” Systems like Affinity allow dealmakers to not only automatically track introductions but quantify the impact. 

Integrate relationship intelligence and data-driven decision-making into your workflow

Affinity’s relationship intelligence platform empowers investors to find, manage, and close more deals. With automated relationship insights, data enrichment, and activity capture, Affinity enables dealmakers to confidently make deal decisions and investments at scale—without needing to stray from the tools your team uses every day. 

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Data-driven investing FAQs

What is a data-driven investor?

A data-driven investor uses data and analytics in their investment process. They go beyond gut intuition and qualitative insights to make informed deal decisions that lead to high-potential investments.

What is a data-driven investment strategy?

A data-driven investment strategy harnesses the power of data analysis, artificial intelligence, and machine learning to guide decision-making when sourcing, screening, and managing deal flow. For example, private equity and VC firms can use relationship intelligence in their investment management strategy to identify paths of warm introduction and close deals 25% faster. 

What are the risks of poor data management?

The risks of poor data management—such as misused, dirty, or incomplete data—can lead to missed opportunities, lost productivity, and reputational harm. Data is becoming increasingly valuable when it comes to sourcing, managing, and closing deals. Subpar data management can significantly impact investment success for VC firms, highlighting the importance of good data maintenance. 

What data-driven investment strategy is most popular?

There’s no one popular data-driven investment strategy that fits all VC firms. But as a relationship-driven industry, VC firms often rely on relationship intelligence to elevate their investment strategy. Relationship intelligence platforms, like Affinity, are designed to help dealmakers build relationships and make fast, confident investment decisions.

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