6 Lessons From Leveraging Data & AI as a Micro VC Fund With $50M AUM
Achieve More With Less
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Following my “Can We Fully Automate Startup Investing?” post last month, I received tons of feedback and DMs with interesting thoughts and stories of various digitization journeys. One of the most thought-provoking messages came from Alex Patow, Data Analytics Engineer at Inflection, a (pre-) seed VC fund with $50M AUM investing in Sovereign Computation.
In short, he disagrees that Micro & Solo GPs will be dominated by traditional approaches. As a quick refresher, I stated the following:
Characteristics: Highest diversification (30+), Tiny tickets (few hundred k), Tiny funds (tens of millions) and little management fees, Flexibility to lead/co-lead/follow, Strong focus on geo/sector/communities/business models/etc., Sourcing, screening, and access are key
Model: Can rely heavily on their proprietary networks/personal brand to source and access sufficient number of high quality deals within their focus areas —> Traditional/Handcraft VC will continue to dominate, Quant VC can evolve as pure follower strategy if systems can be developed with limited resources and founders be convinced that the fund should be allowed to the cap table, Insufficient management fees to afford human workforce plus internal DDVC initiatives —> No Augmented VC possible
After back and forth DMs, I’m happy to have Alex contribute a guest post to share his take on the Future of Micro & Solo GPs, and why it will be Augmented, combining best of data-driven and traditional human approaches.
For those of you who don’t know Alex, he’s leading Inflections technology efforts, everything from automating sourcing with LLMs to the talent platform and website. Previously, Alex was a founding member of Motherbrain Labs, the data analytics arm of EQT's Motherbrain team. In this role, he worked closely with investment professionals and portfolio companies, applying data and AI to private equity and infrastructure investments.
Let’s dive in!
Data-Driven Investing as a Micro Fund
At Inflection, we firmly believe that the future of VC is “data-driven”, especially for funds our size. We also equally value the human element of venture capital. There's no substitute for deep connections with founders, other VCs, and our own intuition. We believe this combination of data and human insight is where outsized returns become possible.
Being data-driven, for us, means building tools that augment the entire team's work, not just that of investors. We focus on enhancing all aspects of our operations, not only sourcing investments. As the sole "data person" in our six-member team, my role involves wearing many hats, but ultimately, my mission is to scale the efficiency and impact of our team through strategic use of data and software.
Second Wave of Data-Driven VC
We’re now entering our second wave of “data-driven VC”. Early pioneers in this space (such as EQT, Earlybird, Moonfire, amongst others) had to build substantial infrastructure from scratch:Complex pipelines to wrangle spotty and immature data sources
Training and hosting custom models
Creating platforms due to a lack of VC-specific tools (particularly CRM systems)
While there's still value in prioritizing in-house development, it requires a large team to implement effectively (something that’s not realistic for funds of our size).
Fortunately, the industry has evolved significantly since the first wave:
Proliferation of (relatively) stable, cheap, and reliable Large Language Models (LLMs)
Decreasing cost and increasing availability of out-of-the-box data and tools, specifically targeted at our industry (we’re big fans of Specter, Gravity, People Data Labs, and Attio for our needs)
Increasing engineering efficiency through AI-assisted coding, data transformation, and cloud deployment tools
We expect these trends to accelerate, with advancing technologies enabling even smaller funds to compete effectively, shifting the key differentiator from data infrastructure to insight interpretation and action.
To funds looking to become data-driven: the time is now.
Our First Year
Inflection’s initial blog post on “An Engineering Approach to Venture Capital” was published just over a year ago. I started with the firm in November of last year.
Since then, we’ve built some really cool stuff, we’ve also done some really “boring” work:
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