By Alexander Viterbo-Horten, General Partner, PSV Tech
According to Andre Retterath from the VC Earlybird, algorithms drive 75% of investment decisions in public markets today. This trend, originating from hedge funds in the 1990s, radically transforms investments in private markets. Modern venture funds are developing AI and data-driven platforms, while new startups are building new data platforms that investors can leverage. Just in 2024, three such companies launched – Signal, Cap and Balentic. By 2025, it is estimated by global research firm Gartner that 75% of venture investments will be informed by algorithms and data, with global investor EQT’s AI platform Motherbrain having already facilitated over €200 million in investments.
At PSV Tech, we embraced this trend a couple of years ago. We built our own algorithm to identify promising startups, and with that approach, we increased our market coverage from 85% to 98%. This way, our data tool added significant power to our investment process.
However, reaching this efficiency level required meticulous work defining the right data points and training the algorithm. At PSV, we invest in pre-product/market-fit; typically, we are the first institutional investor on board. This means there is limited data available publicly. The founding team is the most crucial factor at this stage, particularly their domain knowledge and the traits needed to build a unicorn. By examining our past investments, we can identify critical data points indicating successful founders, such as educational background and career milestones, to predict which entrepreneurs will become future business leaders.
This poses a significant question: Can we accurately assess new entrepreneurs’ leadership and human potential based on data points alone? Can we quantify human qualities?
I would argue no. The data-driven approach is a welcome development. We fundamentally invest in the technological disruption of industries, so it would be counterintuitive not to apply it to our own. Yet, It cannot replace the nuanced work of making final investment decisions. The algorithm aids in identifying early indicators and tracking talent movements, such as changes in LinkedIn titles, but it cannot replace forming relationships with founders. When we invest so early, with limited data points on a startup’s growth and investment journey, we must deeply understand the founders’ vision, drive, and capacity. This cannot be achieved without human interaction.
I believe that as even more VCs adopt data-driven tools, the importance of human relationships will only grow. Currently, being data-driven is a competitive edge that can help you get to a founder first or spot trends early, but as everyone uses these tools, it will become the new baseline. Like VC platforms became a license to operate, being data-driven will be expected.
As AI democratises access to data and streamlines the initial stages of deal flow, making it more efficient and expansive, it will not give VCs a head start in accessing the most talented founders.
The uniqueness comes not from the data but from how it is interpreted and acted upon. AI provides a robust foundation, but the ultimate decision relies on human judgment, intuition, and the ability to build relationships. So, in the future, the old-school virtues in venture capital will set the best apart from the rest. Who will have the ability and intuition to spot trends before the others? Who can build the networks and form the human relationships that will make them win over founders before everyone else comes running after them? And finally, who dares to take (calculated) a significant risk even without having all the data telling them to do it? I believe this will become paramount once again. Returning to the old ways would ignore the substantial advantages of data-driven insights. Instead, a hybrid approach is likely the most effective.
In conclusion, while AI and data-driven platforms are revolutionising the venture capital landscape, the essence of investment—understanding and believing in people—remains unchanged. As technology evolves, the human touch in recognising and nurturing future business leaders will continue to be the defining factor of success in venture capital. The future lies in integrating advanced technology and timeless human insight.
