
Capital-As-a-Service: A New Operating System for Early Stage Investing - emilong
https://medium.com/social-capital/capital-as-a-service-a-new-operating-system-for-early-stage-investing-6d001416c0df
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thisisit
This might sound a bit cynical but it seems we are at a stage where using the
words - data, ML or AI seems enough.

The post while being vague constantly throws around the word - "data". What
data really? If the Anti Portfolio discussion from yesterday
([https://news.ycombinator.com/item?id=15547136](https://news.ycombinator.com/item?id=15547136))
is any indication, it is difficult to predict growth - data or not. For
example, there already was Friendster. What data will help in deciding whether
to invest in early stage Facebook? Or what data will help in decide investing
in Uber? Today's startup are about growing, engagement and then possibly
trying to make money. The truth remains even the best will fail at the last
step.

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rcarrigan87
It's not really clear from the write up exactly what they're offering... How
is this different from any other VC outfit?

IndieVC[0] is the only really interesting spin on investing I've seen out
there and they open-sourced their terms sheet publicly at launch.

[0] [http://www.indie.vc/](http://www.indie.vc/)

~~~
danvoell
You just don’t get it. They are disrupting the VC industry with data. It’s an
OS not an S. wait maybe you are right. ;)

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tschellenbach
1\. Good companies won't pitch you, it's common for VCs to reach out to the
top companies while they are not raising funding. So good luck running your
analysis on data you don't have.

2\. There are no metrics that identify a good from a bad investment. Maybe
this would work in some cases for later stage investments. But even at the
later stage the metrics are all over the place.

3\. Companies applying to this VC fund will game the system

4\. This is not a new thing, every VC firm looks at your metrics.

~~~
burnte
1\. Good and great companies actively seek out funding, especially at early
stages. Lots of good and great ones slowly build and get contacted, too.

2\. There certainly are good metrics, otherwise the basic tenets of business
that have evolved over the past 5,000 years would exist. There may not be
metrics that say if a certain product/service will be a smash hit or not, but
it did not take a crystal ball to see that Pets.com was incredibly
unsustainable, or that Groupon (and Blue Apron was too easy to replicate and
thus overvalued, or that Juicero was an absolutely asinine idea destined for
failure (massively overengineered squeezer that wasn't even necessary for
their overpriced juice bags).

3\. People game every VC system. Remember Pixelon? Theranos was WIDELY derided
in medical and medical research circles from the get go. No way a 19 year old
drop out came up with such a massive breakthrough in blood tests, she didn't
even have the time to learn the medical basics. Faraday has looked sketchy
from the outset as well.

4\. This statement I wholly agree with, and it happens to back up my
disagreement with #2.

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sharemywin
Groupon should have figured out how to be self service for merchants. maybe
combined with an ebates. maybe even pushed into a influencer marketing.

Amazon would have probably gone the way of pets had it not found AWS.

~~~
burnte
I disagree about Amazon. They took the Walmart tactic and moved it digital
before Walmart did, that's how they grew. Become a logistics expert, and
expand horizontally.

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bactrian
The flaw here is using the wrong metrics. Once a company has found a
repeatable and growing business model, it’s trivial to raise money and there’s
no reason to pick Social Capital over anyone else.

The big market opportunity is to fund startups at the very earliest signs of
success. When all they have to show is some code and a few Hacker News upvotes
or GitHub stars.

 _Someone_ is going to make YCs returns look weak by funding this early. And
nothing would do more for diversity than a low barrier test that is 100% blind
and meritocratic.

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EGreg
From my experience, most of it is about connections. I have seen $41 MM thrown
at startups like Color and them failing a month later! Why just recently,
FileCoin raised tens of millions from VCs, before goong on to raise $200 MM
from crypto holders around the world for a product that hasn't even been
developed, in a space where MaidSafe and IPFS etc. already exist. How? Because
it was touted by CoinList, started by among others AngelList founder Naval
Ravikant who has all the connections.

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woah
Filecoin is made by the people who made IPFS, and it is an incentivization
system for IPFS. Maidsafe has been around for more than 10 years and has yet
to launch, and it’s unclear what exactly it does and if it even competes with
Filecoin at all.

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jartelt
It's hard to know what they are actually doing since the blog post doesn't
explain what Capital-as-a-service is. But, if this works for them, I bet it is
because it increases their deal flow. With this system and their marketing of
it they can get more founders to submit company data to them and see companies
that are outside their network. It would be much easier to filter through a
bunch of business data submitted via a web form rather than going through
pitchdecks that founders e-mail them.

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timthelion
Flagged because this says nothing and is just blah blah blah endless
advertising copy. Probably bought half those upvotes, or do you HNers upvote
without reading the article?

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vm
Genius. Finally, someone it taking a "moneyball" approach to VC. The critical
comments on this thread have missed the point.

Although the author is vague, it sounds like they built a system to analyze
company metrics and thus screen investments at scale. This enables them to see
more investments around the world, and makes it easier for entrepreneurs to
"pitch" them, because they don't need to do the time consuming, typical
Silicon Valley pitch process. Many more companies can get funded this way. And
those investments will be less competitive and garner lower valuations
(implying better returns). Again... genius.

~~~
ucaetano
> they built a system to analyze company metrics and thus screen investments
> at scale

Wait, so they invented... financial analysis? KPIs? BI?

Really?

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vm
Obviously they didn't invent financial analysis.

They _built_ a system that does this at scale: 1) collects and organizes the
right data and spits out analysis -- this can be painful from the many times
I've done it. Investment banks hire armies of young analysts and pay them six
figures to do this at scale 2) made it self-serve for entrepreneurs seeking
funding -- not having to do the CRM/pipeline mgmt process associated with
private investing is a massive efficiency improvement. VCs hire associates and
partners and pay them handsomely to do this at small scale (hundreds of deals
seen / year / professional)

As someone who has done a lot of private investing, the value here is obvious
and substantial for the investors and the entrepreneurs.

~~~
hobofan
I am not sure if you are aware, but every VC worth its salt has built such a
system focused on early- or mid-stage startups by now, or is currently doing
so. It's not really anything revolutionary.

It also doesn't seem like they go for a Moneyball approach as you suggested in
your earlier comment. They are going for previously undiscovered top startups,
and not sub-top startups for 10% of the investment sum (that would be a
Moneyball approach).

> made it self-serve for entrepreneurs seeking funding

Not sure where you are getting that from.

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killjoywashere
I submit the central problem is that a lot of things don't scale smoothly, and
figuring out what doesn't scale costs money. Discovering how to transition
from 10 to 100 is easy. 100 to 10,000 might be a 9 figure problem, but
everything after 10,000 is vertical growth until you hit 10M.

The other issue is that some great ideas need $10M or $100M or $1B up front.
Google's TPUs are probably a 9-10 figure investment, with zero dollars income
until the whole system is deployed at scale. But it becomes a money printing
machine after that.

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phantarch
So, a bank?

~~~
rcarrigan87
Banks don't touch startups unless you have personal assets you're willing to
put up as collateral.

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mmanfrin
Full page modal asking for me to sign up. Medium has jumped the shark.

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ashnyc
internet company are global by default now, however VC are not . Social
capital is going global from day one. One of the first startup that applied to
social capital was a Mexican startup. It was much easier for a Mexican company
to get in touch social capital than a local mexican vc. Makes perfect sense.
Social capital will go where no VC will go . Mongolia may be next

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ritarong
The argument they are making is that they can leverage data about a company to
determine how it should be invested in and what steps need to be taken to
ensure success. This will supposedly be scalable and reach areas where venture
capital is not available. Reminds me of Accelerando.

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ajbetteridge
I don't see how it's an operating system. Did I miss something in the article?

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jv22222
If it’s semi automated with humans making decisions in the background it could
make sense.

I guess the value it could bring is low friction yes/no without wasting the
founders time.

It’s the time suck that is such a negative aspect of seeking capital!

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einarvollset
Genuinely - can someone TLDR this? I read it and don’t grok.

~~~
diegoperini
Well said. It is hard to read as a non native, fully technical person.

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ttul
Sounds ... vacuous. I don’t think some kind of revolution in finance is
needed. This sounds like spin.

