How Blockchain Allows A Data-Driven Approach To Investing In Startups
The proliferation of technology has vastly increased the prevalence of startups, and the diversity of the industries that they emerge from.
An expanding landscape of startups and entrepreneurs also leads to a more complicated and time-intensive analysis by investors, however. Prudently approaching investment opportunities requires savvy, experience, and insightful knowledge about a particular industry or market.
Technology produces both the ailment and cure to the rapidly expanding startup scene. Using data-driven approaches, investors can pull precise details and identify aspects of blossoming ideas and companies that are otherwise muddled by the crowded nature of the entrepreneurial scene.
Conversely, startups are provided with new frameworks for managing their networking, documentation, resources, and more.
As we enter a new era, innovative industries will begin to coalesce into integrated systems, creating a new ecosystem of technological advance. From AI to the Internet of Things (IoT), the future looks bright.
A data-driven approach makes sense
Data-driven approaches are all the rage these days, with sectors from medical genomic analysis to machine-learning algorithms dominating innovation narratives. Data trends have also begun permeating into the startup and investment scene as well.
Investors are looking for adequate tools to assist their evaluation of startups, and those tools have become available in comprehensive offerings over the last couple of years.
Traditional methods of venture capital scouting are struggling to keep up with the rapid onset of startups and ideas born out of dorm rooms, offices, and local cafes.
The attraction of startup investing is as large as it has ever been, but the methods for analyzing the ecosystem are evolving in step with technology.
Venture capital firms are turning to enhanced metrics and data analysis, with firms also — particularly in software — evaluating hackathons, accelerators, and corporate incubators to discover talented leaders and young ideas.
Leveraging intersectional tools, such as blockchains or AI for improved analytics and risk management have also become popular avenues for startup market analysis and investment.
This has conceived companies like Blockseed that provide a framework for investors and startups to analyze projects. They provide some sort of an “advisory” role that startups can use to refine their business model, and investors receive a real-time evaluation of projects and advanced metrics on other investor interest.
Other projects — like Aragon on Ethereum — combine a public blockchain-based foundation with decentralized governance of organizations and businesses. Startups can tap into open-source resources, collaborate with global teams, manage a distributed organization framework, and raise funds directly through the platform.
Investors on Aragon can engage in insured agreements with startups and organizations using the Aragon protocol, providing funding thresholds and incentivizing good behavior and transparency. Investors can also be given granular permission access controls for evaluating project statuses and financial details, which weigh heavily on investor decision-making.
Emerging industries such as blockchains, AI, and IoT are complementaryto each other and should foster a new future technological stack of integrated systems.
Startups to choose from in each of these sectors are rapidly increasing and merging together in mind-bending blurs. Properly evaluating them can become overwhelming.
In particular, the meteoric rise and fall of the ICO in the blockchain and cryptocurrency space turned heads as they raised an enormous amount of funds, largely built on promises rather than actual functioning products.
The result of the ICO epidemic has shifted the investing narrative in blockchains and cryptocurrency to a much more prudent approach. Investors have entered the space much more apprehensively than last year, but the investment continues nonetheless.
One of the trends that have materialized since the ICO crash has been an increased emphasis on the fusion of blockchain, AI, and IoT in emerging sectors such as neo-banking, decentralized governance, and supply chain.
Data-driven approaches are dominating narratives across industries and emphasis on more precise metrics, crowdsourced resources, and AI-powered analytical tools seem to be the inevitable direction of entrepreneurial innovation.
Grappling with the expanding market data and diverse ideation of advanced technologies requires a more nuanced approach than before. With potentially lucrative IPO opportunities on the horizon for any validated startup unicorn, the incentive for entrepreneurs and startups to connect through refined data approaches has never been greater.
All that said, you might want to sit and wait patiently to see what happens with the crypto market next. It might be best to wait for the SEC to complete their work, before considering investing in cryptocurrencies any further.
This article originally appeared in Forbes.