Quant comes to Venture Capital

Risks to the trend

1. LPs too slow to react, VCs lack incentives to admit limitations in current processes


2. Poor quant performance 


3. Downturn in private markets 

Advantages of supplemental quant analysis

1. Easier to scale than traditional VC


2. Allows for fast, pre-emptive decision making — identify deals before they come to market, use robust dataset and proven grameworks 


3. Reduce Type I and Type II error: Bias and patterns of under- and out-performance are hard to detect. Quant systems can identify and

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Definition: Quantitative investing proceeds by assembling, cleaning, and pooling vast amounts of data on prices, deals, valuations, etc. Advanced techniques are applied to study patterns of growth, failure, value evolution, and performance. Deep statistical insights can be teased out of data. The best systems learn and adjust their accuracy over ti... See more

Comparison to public markets Quant in venture and throughout private asset markets looks different as agreements can be bespoke, fluid, and negotiated. There is often more significant uncertainty and risk. There is also less liquidity and readily available data than in public markets, but much of this changing and will continue to evolve.

Bottom Line: The use of big data in analytical decisions is here to stay. It's no surprise that the trend is accelerating in venture capital and startups.

Soon most leading firms will employ quantitative evaluations because they need to be competitive. There is an increased demand for alpha in private markets and richer data available.

Opportunities:

1. Quants-as-a-service companies


2. Talent identification 


3. Dedicated funds employing this strategy 


4. Artificial Intelligence at the table model