I. Setting the stage
As everything these days seems to move online, it may be a good moment also for investors to sit back and re-evaluate the ways they run their businesses.
When I started this mapping (and yes, it was way before the lockdown), my main goal was to simply understand what was the current landscape of tools that investors could leverage and how to choose the best ones that could fit specific needs and structures.
I was also a bit skeptical and, let’s say that, a bit fed up with the overused adoption pattern of “everyone else is using it”, and I had to look with my own eyes to the different possibilities.
So I have started navigating the ecosystem, testing several different things, going through countless demo calls, all with the final aim to be able to reach a more thoughtful decision when looking at a piece of software and be able to optimize a VC stack at a glance.
I do not have all the answers, and sometimes I fall short of my own advice, but maybe my efforts could help someone else on the same journey.
II. The VC Tech Stack
In mapping exercises, there are several ways to get to a satisfactory solution: you could run a survey and ask people what they use; you can focus only on the upper quartile and consider the most reputable tools; you can identify specific requirements or traits to pre-filter your potential candidates; or you can use brute-force, which is kind of what I did.
I have tested many but not all the platforms on the map, so do your own due diligence and see those things by yourself. Moreover, to be clear, this is not a ranking of any type, because it became super obvious to me that we are always optimizing under constraints. A solution that may be optimal under every aspect may in fact be too expensive for a small team and, well, that makes it not-the-best. Preference, budget, team size, location, these are all things that constrain our systems and influence the choice of specific tools.
A few extra considerations:
- I am trying to consider only investment-essential related activities (and adjacent). I won’t discuss document management systems, board software, marketing, employee management, cybersecurity or similar use cases, first because it is not my playground, and second, because other resources exist that may help you with some of these points. Also, I am not listing things that are incredibly valuable but still out of scope for this exercise (e.g., Zapier, Notion, IFTTT, etc.);
- Some solutions are additive, other mutually exclusive. Maybe having two different portfolio management software is redundant, while having two data sources is certainly not;
- This type of extensive list is super prone to errors and incredibly subjective. I used a personal and fairly basic classification, and tried to classify and include things I could find information on. If there is any mistake or suggestion, feel free to let me know — and above all, if you know other things in the list, shoot me a message and I will try my best to keep it up to date;
- I made an effort to classify each tool in one category only, although this may not be true all the time. There are tools that sometimes may fall into two different categories, which I found to be a bit over-confusing in my journey, therefore I arbitrarily tagged specific platforms in specific ways to reflect what I thought was the best fit.
Now, let’s stop the chit-chat and jump into the map.
⚠️ I am guessing you may want to click and dive in, so I highly recommend you check the up-to-date map here rather than staring at the image above.
For each provider, there is a short description, website, price indication (where available), and whether they have an API or not. There are at this stage a bit more than 200 providers listed here.
I cannot tell you how to use it (but yes, you can change the visualization from “list” to “tabs” if you feel like), but I can tell you how I built it. On the tags I used, I think many are self-explanatory. However, a few may require additional details:
- Under Alternative Data, for example, I have included things you can buy, look at or scrape, to add up to the traditional information you may already have (but be sure you can do it legally);
- The same consideration is applied to Scouting Sources, which are sources I believe to be interesting if integrated (but again, unlawful scraping = bad behavior). I am aware the list can be infinite, but if you have valuable insights I would love to hear them;
- Portfolio management is a broad category, which includes reporting, accounting, portfolio monitoring, cap table analysis, etc.
- CRM and Dealflow management tools are not the same thing (sometimes they overlap, but they are definitely not the same stuff), but since they can often be adapted to pipeline management you should at least consider some of them as potential alternatives. This also kind of explains why I have split the CRM systems that you can apply to dealflow and the other ones that are mostly for people and relationship tracking;
- Finally, the API field mostly means outbound APIs (to extract information rather than importing them).
III. Takeaways and learnings
I am likely not discovering hot water here, and I am sure some of my learnings are not peculiar to VC tech stack but rather generalized across the roll-out of different types of technologies.
However, I thought it could have been interesting to share some of those takeaways:
- Optimize, optimize, optimize: it is very easy to get swamped by apps and software, and being fascinated by the new shiny tool just released (I am guilty as well, sorry). Focus on what people use and track the usage to see whether some other tool in place can address the specific use case that may bring you to kill part of your stack;
- Stitching things together: a one-stop solution does not exist, and even if it would I guess that probably investors would be a bit skeptical about it. This means you have to stitch things together, so consider how easy and flexible are platforms. If you wanna have a source of truth, and avoid disconnection between your systems, this is paramount. Automation is key, but don’t abuse it because the more you stitch, the more likely it is the something will break at some point. Be careful, because more is not always better;
- Process vs Product: obvious but not easy, sometimes your problems are not with the tool (or the absence of it), but rather with the process. Easy to be said than done, but spend time on the processes first;
- Build vs Buy: I am still convinced that if a tool can bring competitive incremental advantage (I am thinking of this, for example), it still makes sense to build it by yourself. However, for the majority of the software you want to internally implement, buying them is often more effective. Built-in software has to be designed, maintained, fixed, and there are so many good solutions out there that it does not make sense to create a new one. Use cases may differ, and there are circumstances where you really need to build your CRM system, but 90% of the time this is not the case. Don’t fall victim to the overconfidence bias, because odds are that a dedicated company/team that builds a specific piece of software all day long will likely do a better job than you;
- Due diligence: I am particularly fond of small emerging and more agile companies, but as an investor, you should use your investment skills and processes to assess a potential tech provider. Is the tech/engineering team behind it good enough? What is the trajectory and roadmap of the company? Do they have enough funding to be around in one year and if not, will they be able to fundraise or self-sustain? Who are their clients? To some extent, this may seem too much simply for choosing a provider, but believe me when I tell you that you are not going to change the platform for at least a couple of years (switching costs are often too high), so it is definitely worth the effort.
IV. Conclusive thoughts
I am a good preacher, but I have to admit that I often do the same mistakes I warn people against. I believe that choosing deliberately a new tool is not a trivial task and it is somehow similar to renting a new apartment: you have to enjoy what it looks like inside and outside, it has to have all the minimum functionalities you look for (but maybe you can sacrifice a thing or two), it has to be well-connected, and the price has to be good enough for your budget. And you have to consider relocation costs and a minimum tenancy, as you have an onboarding cost and a holding period for the software you end up picking.
Sometimes it may be overwhelming to run a full assessment for multiple platforms, so here it comes the simplest piece of advice I can give you: start with your ideal platform, the perfect solution you may want, and design all the requirements or features you want this to have. Consider ease of use, flexibility, and end-user experience. Is the system designed for the purpose you had in mind? How does it ingest or spit out data?
Then, check your list of alternatives against this ranking, and eventually narrow down your options to two (for complex decisions, it seems to scientifically work better to achieve a satisfactory decision).
It is also likely that not everyone will be happy about the choice of the tool, and that’s ok. Try to make happy as many people as possible, but do not be Buridan’s ass and choose something.
And, if you feel like sharing what is your current choice of tools (whether you are happy with those or not is a different story), feel free to fill the following form! If I get enough responses, I will try to sum it up in a follow-up post with aggregated numbers: VC TECH STACK SURVEY.