Technology will drive how VC investments are made as much as tech companies themselves have transformed the market. Experts from Australia’s Telstra Ventures discuss how AI will only accelerate deal sourcing and revenue

Software and technology-driven transformation is not slowing down
One assumption underlying much of the commentary about VC’s future is that software innovation and entrepreneurship are no longer as risky as they were. The argument is that we’ve had a half-century or more to study and model the commercialization of code and that the playbook is now open to anyone.

With this in mind, innovation has not plateaued. Ten years ago, AI, edge computing, gamification, crypto, and many other fields barely existed commercially and attracted few dollars. Now, they’re essential target areas for early-stage capital. As such, the commoditization of the software playbook in no way speaks to the irrelevance of venture capital as innovation will keep creating new business, and in turn keep VC relevant.

In our view, both the data and our experience suggest that the digitization of everything is accelerating. We’re just at the beginning of devices talking to devices, and mass audiences having ever more seamless, immediate, and immersive exposure to tech. 

Using data science to drive venture capital
Currently, most VC investment decisions are human, but by 2030, we estimate that will drop by half. Why? Because as AI becomes more sophisticated, it will be a key differentiator for how VC firms operate.

In an industry that has largely depended on relationships to source opportunities, data science has focused that lens and makes the identification process faster and more comprehensive. Algorithms at this stage can be used in a myriad of ways – whether it’s identifying an emerging category that is gaining steam, identifying competing companies in a particular space, or deciding if a company is at the right stage for investment. 

In short, data science better equips VCs to identify and validate prospects. For investors, this instills trust in the choices put before them, knowing that the promise of these prospects is rooted in hard evidence, instead of just impassioned sales pitches.

Driving revenue beyond market introductions
A common goal we have for all our companies is straightforward: we want them to be successful, faster. While an investment round is a one-time event, revenue represents organic, recurring self-funding that is the basis for actual business growth. This understanding of the importance of revenue and the impact it has on portfolio companies makes it a permanent focus of our operations. 

Investment capital is fungible, other types – such as intellectual capital and relationship capital – are not, but are still important determinants of growth and success. To this end, we seek to deliver what we call ‘Revenue Bearing Relationships™’.

This formalizes our extensive network of global enterprises and channels. Our goal is to ensure the introduction of our portfolio companies into this network will quickly generate real market and product intelligence, leading to real revenues. 

Over the long term, the value of this network shifts from accelerating revenue growth to creating the conditions necessary to scale successfully.

 

About
Telstra Ventures invests in extraordinary entrepreneurs building what's next, right now focused on pre-growth and early-growth companies across all the Cs: Cloud, Cyber, Crypto, Carbon and Climate, Coders, Creators, and Consumers as well as other fast-growth software and digital sectors.

 

This article originally appeared in Preqin Global Report 2023: Venture Capital. The opinions and facts included in the above do not constitute investment advice. Professional advice should be sought before making any investment or other decisions. Preqin and Telstra Ventures providing the information in this content accept no liability for any decisions taken in relation to the above.