A few weeks ago, venture capital firm EQT Ventures invested £2.86 million in small Dublin-based gaming start-up WarDucks.
With a focus on VR and AR mobile gaming, and a team with backgrounds from the likes of Facebook’s gaming team, the investment was a win for EQT Ventures which was looking for a new gaming start-up after recently exiting its investment in the Finnish studio Small Giant Games.
But what was really interesting about the WarDucks investment is that EQT Ventures found the start-up through its AI platform, Motherbrain.
Spearheaded by Henrik Landgren, EQT Ventures’ operating partner for analytics, Motherbrain analyses data from around eight million start-ups across Europe and the US and helps the VC firm find the right big company to invest in.
“In Europe, there are 10 unicorns, maybe 12, created every year [private companies valued at $1 billion or more]. The pool, where those companies come from is millions of companies. For an investor, the question is, how can you identify the most promising start-ups first to be able to get as many of those 10 as possible?” explains Landgren.
Here’s how AI is helping EQT Ventures find the next unicorn.
Tech at the core of investing
EQT Ventures is different from other VC firms in that all its partners come from tech backgrounds, as opposed to the usual finance route. Landgren, for instance, built the analytics team at Spotify, while Lars Jörnow, who led the investment in WarDucks and Small Giant Games, started the mobile gaming team at King, launching games like Candy Crush.
As a result of this tech background, creating Motherbrain was integral to the way EQT Ventures wanted to be different. For instance, a team of 25 people can only carry out so much work, but a research platform can speed up that process, allowing them to carry out more analysis.
Motherbrain has since evolved into a data research platform, and a place where the team makes its decisions.
“We record everything and that allows us to apply AI. And then we can predict what we want to do, and automate all the analysis and work we do on companies out there,” says Landgren.
The platform is getting better and better with each decision the team makes. It’s not just about using tech to automate the boring, admin work, but training it to make better decisions as it can analyse more factors than a human could. “We’re not outsourcing the whole thing to an algorithm, instead we’re integrating it into our process.”
Augmenting the humans and tackling bias
Sure Motherbrain speeds up the process of finding companies, but it also helps to do another thing: allowing all the partners at EQT Ventures to do the human aspects of their job they enjoy, like building relationships with start-ups.
“What we’ve found is that to find these companies is one thing, but the key is to be able to build a relationship with the best founders out there,” explains Landgren.
“We can find them as early as possible and make sure we do everything it takes to build those relationships in as good a way as possible.”
After Motherbrain suggested WarDucks as an investment opportunity, Jörnow then reached out to its founder Nikki Lannen over LinkedIn. “We were very excited that that was how we were found as a company of interest,” Lannen told the Standard. “There’s so many start-ups out there and it makes sense to use certain metrics to find which ones have potential.”
The timing helped too, WarDucks had just started pitching for investment so it was the right time for Jornow to get involved.
“EQT Ventures is well recognised in the games space, so we were super excited. For us, if we could pick any investor to have on board, it would be EQT,” added Lannen.
There are other challenges a platform like Motherbrain can solve, such as connecting VCs with companies outside their normal sphere. This is crucial to helping increase investment flows into diverse teams, particularly with female founders. In 2018, only 2 per cent of funding in Europe went to all female teams, and only 5 per cent to mixed teams.
“The broader topic here is around how to find companies that typically wouldn’t find us,” says Landgren. “Since we are looking at hard facts, that means we can find companies, they don’t need to reach out to us, they don’t need to have connections to the investors, or in the ecosystem, or going to conferences and knowing the right person.
“We can find them based on their merit and that’s very rewarding.”
Landgren hopes Motherbrain can help the VCs challenge their own biases and look at companies outside their normal scope. “We can instruct Motherbrain and experiment with it, to say what if this company had been from another country, or in another sector, or had another investor.
“We [can] change one parameter and see how we assess it and that’s a pretty interesting way to test our biases.”
Though Motherbrain’s tech is impressive, it’s important that the investors don’t just rely on what the platform supplies, but use its insights to augment their own knowledge. Landgren says people shouldn’t be slaves to the data, but use their insight and experiences too.
“The key is that we should make sure we train our gut feeling and instinct depending on great data, the correct data, and if Motherbrain can help us to learn how to become better investors, that would be amazing,” he adds.
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