July 28, 2022
Finding the best startups to work with is an important task for investors looking for their next opportunity. It's called startup scouting and refers to the process of searching for promising startups, usually those in the early stages.
According to Statista, in the 1st quarter of 2022 alone there were 2,364 early-stage venture capital deals worldwide.
Traditional scouting techniques such as networking have proven effective over time, but new technology-based methods can help make this process much more efficient.
In this article, we will explore how venture capital (VC) firms can use public web data and artificial intelligence for scouting promising and innovative startups.
What is startup scouting?
Startup scouting is the process of discovering relevant startups to work with, usually those in the early stages. The desired result of this process is having a radar that helps you spot what you're looking for in a timely manner, and with a high success rate.
That scouting radar can be many things: a dedicated role, an automated platform, or your overall strategy of how you find innovative solutions to add to your business or to invest in.
The term "startup scouting" is being used to describe two types of scouting activities. Scouting for investing, which we are focusing on in this blog post, and the process when corporations are scouting for startups as part of their innovation projects and innovation strategy.
Because startup ecosystems are highly dynamic, keeping up with current developments provides critical competitive advantages. It's also time-consuming and can be very challenging, that’s why there’s a demand for automated startup scouting solutions.
Startup scouting techniques
Here are some other popular methods of looking for new companies to invest in:
Databases provide up-to-date information about companies, their firmographics, funding deals, and more. Great examples of popular startup scouting databases are CB Insights and Crunchbase, which have information on thousands of companies.
It's a convenient tool for discovering new technologies, innovative ideas, emerging companies and keeping up with what's new in the startup ecosystem.
Dedicated startup scouting platforms
Dedicated startup scouting platforms are specifically designed to help investors and corporations discover relevant startups. The information in these platforms can be presented in various ways, for example, in a self-service tool or in the form of actionable insights.
Using startup scouting platforms, venture capital firms can quickly find startup companies to invest in by filtering companies based on their size, location, founders, founding date, and more. These tools help the users to find startups they are looking for at scale, quickly, and accurately.
Networking events and personal contacts
Networking is the most traditional method among those that we're discussing in this article.
There are various events where investors can look for new promising startups creating innovative technologies, from major conferences to startupers' breakfast events.
For someone working in the investment industry, it's essential to have an extensive personal network of people who can connect you with promising projects, and events create various opportunities to expand that network.
Improving startup scouting with public web data
Technology based startup scouting, which is an efficient way to find new companies to work with, is closely related to public web data. When looking for new startups or ways to evaluate already selected startups, investors can use various public web data points to do it quicker and at scale.
Scouting activities can be split into three stages: planning, search, and evaluation. Let's explore how the public can be beneficial in each of them.
Firstly, it's important to identify criteria which matter in the search. It can be the startup industry, size, location, company maturity, its people or other aspects that interest you.
In this stage, public web data can be used for a general analysis of the industry and the business environment of the companies you're interested in.
This stage presents many options to anyone looking to discover promising startups. It can be done in a more traditional way like relying on networking, however, nowadays, startup search can be completely automated and enriched with channels and sources you wouldn't think of at first.
For example, instead of going to an event to look for new startups, there are automated solutions that crawl the websites of such events and gather public information about the startup participating in the event.
- Find companies or industries showing early growth signs
- Identify startups that desperately need investment
- Look for startups which are about to reach a more mature stage
- Find companies and technologies which are at the very early stage
- Screen for emerging companies and technologies receiving a lot of attention from the users
The most important benefits of technology based startup scouting mechanisms is that they make this process much quicker, and help investors find the true hidden gems which might be impossible to find without technology.
When looking for startups, investors look for information about their headcount growth, employee and customer satisfaction levels, and other factors that help determine the overall situation of a startup company.
There are various aspects of the startup company that help the investors to evaluate those that they select for consideration:
- The team
- The business model
- Consistency of company growth
- Competitive landscape
Let's take job posting data as an example. Using information about job posts by specific company or companies, investors can monitor the following things:
- Changes in key roles
- Talent movement between companies they are interested in
- Changes in management positions
- How company compares to its competitors
All this information is available in public job postings. When it's delivered to investors at scale and is continuously refreshed, it helps them get a better overview of the situation of the companies they have on their radar.
Keeping up with the latest developments in the market you're interested in puts you in a strong position when looking for new investment opportunities.
Using technology based startup scouting solutions such as tools driven by public web data simply helps investors to discover innovative companies and the right startups more efficiently.
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