Data Driven VC Investment Decision

Categories Startup, Technology, Venture Capital

Google is famous for its reliance on data and analytics to drive decisions.  Google’s approach makes perfect sense in areas such as online advertising where large quantity of data is readily available for analysis.  Recently, it even applies the methodology in decisions traditionally reserved for humans: recruiting and organization development.  Numerous articles have already been written on the subject as recruiting and organization decisions can impact company performance tremendously and millions are spent by organizations to gain a competitive edge.  Logically, they are also utilizing a data heavy approach in startup investing.  Like other leading technology and media companies, Google has its own internal venture arm, GV (formerly Google Ventures).  Corporate ventures, venture arm of corporations, generally hold less prestige than traditional venture capital firms as investing is typically not part of many company’s core competences.  Even though traditional venture capital firms have many unbelievable home-run stories, investment decisions are still primarily based on human judgments and relationships. It is often difficult to tell if performance is driven by luck or skill.  This seems counterintuitive in an industry where billions are at stake.  Google wants to minimize the “gut” approach to its investment arm and may eventually outsmart its successful cousins on Sand Hill Road.  According to the New York Times, GV’s investment philosophy is very different from traditional firms.  It employs many specialists to collect and analyze data before investment is made.  How well that works remain to be seen as Google does not disclose return data but there is no question Google brings an interesting twist to a highly competitive VC industry.

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