VentureFund.io, a recently formed early-stage venture capital fund, has created an API that it plans to use to identify investment-worthy companies. One of the biggest challenges venture capitalists face is finding up-and-coming companies that are seeing meaningful enough growth to meet the bar that makes a startup a viable candidate for investment.
As Clarence Wooten, VentureFund.io's co-founder and managing partner, explained, "Today, the name of the game for startups is traction. Most startups don't fail because they weren't successful at building a product; they fail because they aren't successful at gaining traction and growing users and revenues."
By integrating the Traction API into their applications, startups gain access to a dashboard that displays key performance indicators VentureFund.io believes are critical for entrepreneurs to monitor. In addition, VentureFund.io's technology uses an algorithm that produces a rough estimate of the company's valuation based on those KPIs, and it will allow entrepreneurs to benchmark their metrics against the broader universe of startups using the Traction API.
But perhaps the most compelling reason to use the Traction API is that the VentureFund.io team will monitor the progress of the startups using it, and, Wooten said, "should a startup gain significant traction, we will more than likely pitch them."
Turning Venture Capital Inside Out With an API
Raising capital is considered one of the worst parts of being an entrepreneur. It's often time-consuming and distracting, and it doesn't always produce a successful outcome.
But VentureFund.io's API model offers a solution for alleviating some of the pain of fundraising by turning the venture capital process inside out. The promise of the API is that entrepreneurs won't have to guess when they're worthy of funding, and they will no longer have to chase the venture capitalists. Instead, as VentureFund.io states, entrepreneurs can "let [their] data do [their] pitching." That data will enable the venture capitalists to identify the startups that are potentially ready for funding, and they can engage with those startups at the most appropriate time.
Obviously, VentureFund.io can't fund every company, and the Traction API will need to gain traction itself to prove that this model can work, but as more and more venture capitalists say they're trying to make data-driven decisions, VentureFund.io's model seems like a timely experiment, and one that could even help the industry address broader complaints about venture capital.
The booming startup economy has created countless entrepreneurs and encouraged many to start new companies. Silicon Valley may still be the center of the tech universe, but a growing number of startups are being born elsewhere, and the entrepreneurial ranks are increasingly diverse. Said Wooten, "We aim to be helpful to all founders, regardless of location, gender or background." By relying on an API and raw data to identify promising early-stage businesses, he and his team just might have the right tools to deliver on that goal.