With the advancement of new technologies, especially Artificial intelligence (AI), Robotic Process Automation (RPA) and Machine Learning (ML), radical changes happened in the entire VC ecosystem. This impacted both the demand and supply side of the VC, therefore for a venture capitalist to remain ahead of its peer, needs new tools, approaches, and processes to streamline the whole deal process. Venture capitalists, though invest in advance technology start-ups, themselves were quite low tech in their business operations but now increased competitiveness of the VC market is changing this low-tech orientation. For instance in the US, there are around 8.5 million companies and 0.55 million investors but out of 0.6 million new startups annually, only 0.2% get venture funding. In other words, only 1200 startups out of 8.5 million companies get venture capital funds in the US with a probability plummeting to 0.014.
Traditionally, VC industry was quite apathetic, relationship-oriented, and low tech. Venture capitalists used large spreadsheets, focused on liner- sale model with short term goals. Investors were more accustomed to formal presentations, discussions, and intros but now, they are incorporating leading fintech into their own business in various phases of the VC cycles from lead generation till performance monitoring of their portfolio companies. Nowadays, VC firms take advantage of technology to understand complex dynamics of the growing VC market, which is expected to have $145 trillion global Assets under Management (AuM) in 2025 , almost twice the amount of $84.5 trillion AuM nine years ago.
Venture capital deal process includes several stages in deal process starting from research, cold calling, emailing, due diligence, customer relationship management, matchmaking, and managing their portfolio companies. Hence, most of the venture capital firms use minimum one form of Software as a Solution (SaaS) to manage different forms of partnerships esp. Limited Partnerships LPs, build a database of contacts, interaction with their contacts and ensuring cybersecurity of the data. For each process in the VC cycle, there are specialized tools for each stage and to explain each stage’ available tools is beyond the scope of this research.
Today VC firms are deploying specialized tools for each step to speed up the deal flows instead of a general software to manage everything, especially saving time in data entry, building databases form emails and other routine tasks. Having own specialized tech stack for different deal stages during the deal process, is gaining popularity among VC firms to gain a competitive advantage through data analysis from multiple data sources (Carson, 2021). The best tech stack for each VC firm differs in line with its needs and other constraints, but a nice-to-have platform must at least keep track of every bit of information at each stage and on every occasion during the entire deal flow process.