InReach Ventures, an early-stage venture capital startup, is using artificial intelligence to source the right startups to invest in.
For many years, the venture capital industry has followed a very familiar path for investment, namely pitches and face-to-face meetings that lead to the deciding factor of whether a startup will receive funding or not.
However, the use of artificial intelligence and machine learning can transform how the investors select the companies to add to their portfolio.
In February 2019, InReach announced that it had closed a new €53 million (£45.60 million) fund, surpassing its original target of €50 million (£42.8 million).
The funding will go towards the continuous development of its AI technology platform, called 'DIG', which is built in-house by InReach software engineers.
Roberto Bonanzinga, cofounder at InReach Ventures, tells Techworld that the venture capital ecosystem has remained essentially unchanged, and this is why he, along with other founders John Mesrie and Ben Smith, set out to "evolve the VC model".
"We think that the key to evolution is the use of software technology, AI, to recreate a new way to engage with entrepreneurs," Bonanzinga says.
InReach claims that it differs from other VC firms because it is constantly on the hunt for new startups and entrepreneurs, rather than reactively waiting for a pitch or a call.
"We actually proactively look for and contact entrepreneurs," says Bonanzinga. "So for us, if a company is based in Sheffield, Budapest or Stockholm it doesn't matter, we discover the company using the same approach with software technology and then if we like it, we invest.
"The particular reason why the company was founded is because we felt that the entrepreneurial idea can happen anywhere in Europe, and we want to figure out a more scalable way to monitor the only European ecosystem and give entrepreneurs the same chance if they are based in London or Sheffield," he adds.
Since launching in 2015, InReach has made eight investments across Europe and hopes to continue making investments aided by its technology in the coming years.
"Entrepreneurs are having more and more options about how to finance their company," says Bonanzinga, reflecting on the current state of venture capitalism. "In the past, it was only the bank, then came the venture capital and today we have the plethora of crowd sourcing - things like Kickstarter for hardware, to things like Seedr or Crowdcube to the most extreme Initial Coin Offering in the world."
"I think different types of companies need access to different investments, so I don’t think the issue is about trying to convince but more about the quality," he adds. "Our motive here is one single objective, discover the most interesting entrepreneurial idea in Europe."
But are these new options available to entrepreneurs undermining the role of venture capital? Or will VCs continue to play a major role in shaping the future of startups?
"That evolution doesn't completely change the rules of engagement with the entrepreneurs, but in a nutshell it's true that some entrepreneurs are moving away from VC and that's a combination of two things," Bonanzinga says.
"One is the function of new funding opportunities, but it’s also a function of the availability of change, and that's why we started InReach. It is one of the very first in Europe to actually change the VC model."