The venture capital industry is built on signals. Lead investors help close rounds, prorated rights show promise from a company, and the partner title gives validity to people within companies looking to close deals.
Respecta new bet being built by former AngelList manager Eric Woo and family office operator Chris Shen, takes advantage of these characteristics. The startup, which will be launched publicly today, is building a rating system for the venture capital industry. The goal is to create a more standardized way to track information about emerging fund managers so that institutional investors know how to navigate the changing landscape.
“There’s just too much influence with a small number of people, where if Keith Rabois or Elon Musk just tweet something, everyone just jumps on the bandwagon.” said Woe. “In the emerging executives’ space, that signal usually comes from big anchor LPs.”
How it works
Respect‘s pitch is that a wider audience wants to participate in supporting venture capitalists; they just need the signal on where to go and how to measure (as proof of consistent returns isn’t necessarily a reality thanks to the whole 10-year horizon thing).
Revere uses data from an emerging company and uses 20 categories to verify, aggregate and examine the quality of the company in 5 areas: sourcing, team, value added, track record and business management. It then creates a heat map, using the same data set provided, that shows at a glance a company’s strengths and weaknesses in said categories. Research reports cover everything from details of fund formation, management structure, strategy and service providers to evaluating the company. It does due diligence and to date Revere has written over 80 reports.
The strategy is reminiscent of what Cambridge Associates has been doing for years, but the startup claims to do it cheaper, faster and with emerging fund managers as its main focus. For example, Revere doesn’t charge fund managers for reports; instead, it charges LPs per review, or a monthly subscription fee to access all reports. The 11-strong startup is currently taking about two weeks to prepare a report. As demand increases over time, it becomes more difficult to flip reports over that same period.
As Revere collects more data, it sees an opportunity to create more asset class performance benchmarks, something Pitchbook and Cambridge Analytics haven’t done well, per Woo. “The moment we can stand up and say these are the benchmarks, and we show you why funds that are smaller perform better at an earlier stage, we think this will literally be a sea change in terms of perception of risk’, from the LP side.
The startup currently has over 100 funds on the platform. Revere declined to share client names, but said one of the first clients was a significant investment advisor. The company does not see itself becoming a marketplace that helps transact between verified companies and interested LPs; but did confirm that millions have been invested in funds as a result of his reports.
While Revere is unable to widely distribute a report of actual fund manager data, the format, tone, and structure of the sample data in the template report below gives a good idea of what subscribers are seeing.
REVERE Reviews – Lantern Ve… by means of londonbusinessblog.com
But who judges the reviews?
Ratings are a sensitive topic in companies, only amplified by some of the reactions I got from investors when I told them about this rating platform. VC-rated sites have emerged in the past, largely run by and for founders, but have always struggled with negative bias selection and the difficulty of verifying individual accounts. back channel, currently accepting beta users on its Testflight aims to be a private subreddit for founders and LPs. Revere will have to convince investors that this isn’t a ranking of who’s hot and who isn’t, but instead research-based recommendations meant for LPs (not tech twitter).
Still, Revere could fall into the same trap as others. The subjectivity in some of the qualitative reporting of new venture companies could raise questions. The company doesn’t use hard science or artificial intelligence to draw conclusions about a company, meaning bias can easily creep in. Would Woo feel more strongly about a former AngelList executive raising a new fund, or would Shen specifically look for people who explore the depths of the family office world? The difficulty is getting people to rely on data, rather than brands, when it comes to supporting new ventures.
Woo and Shen believe that Revere’s job is not to give a thumbs up or down if a particular venture fund or individual is a good idea, but instead to give a full picture of what a entity currently offers . That said, Revere showed in a mock-up of a report that it rates companies using categories like “excellent” and “best in class,” a nomenclature reserved for “all-round performers who score well in multiple categories.” . Each year, the company ranks a few companies as best in class, rising stars, or verified.
“Part of the reason people like to invest in venture capital is for the intangibles, right? If they just wanted pure returns and some kind of good risk-adjusted returns, then there are other asset classes,” Woo said.
To date, Revere has raised $5.62 million since launch; including a May 2021 pre-seed round of $1.35 million from investors including AngelList, Twitch co-founder Kevin Lin and Blue Future Partners. It also raised a $4.27 million round from Cherubic Ventures, Overlay Capital, Benhamou Global Ventures, Oyster Ventures, MDSV and others.
Rather than trying to get rid of investors’ need to match patterns and tick specific boxes, Revere aims to disrupt the industry through standardization. Let’s see if the market is ready to ask for help; and if the default is tired enough to be disturbed, PDF style.