Can an Algorithm Pick Start Up Winners?
When most venture capitalist firms decide to invest, they've done months of meticulous research. Bucking the trend, Correlation Ventures has created predictive software to help.
What's the Latest Development?
Before a venture capital firm decides to invest in new company, months of research go into assessing the viability of the business plan. But now, a California-based company called Correlation Ventures, which bills itself as a 'new breed of venture capital firm,' has built predictive analytic software to help determine whether a given business is a good investment. "To run its model, start ups are asked to submit five basic planning, financial, and legal documents. It enters these into a program similar in function to credit rating software." Receiving a top score from the software results in a 30-minute interview.
What's the Big Idea?
Before Correlation Ventures started to design their software, there was no library of venture capital data to draw from. So the company went hunting, partnering with Dow Jones and signing non-disclosure forms with other VC companies to access their internal statistics. "What's not yet clear is whether this system works. Correlation Ventures has so far invested in 26 companies in diverse sectors but says it is too early to report successes or failures." David Coats, who created the software says, "We're not claiming to have a magic crystal ball. We're tilting the odds a little in our favor with each investment."
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