Over the past few years hedge funds started using alternative data — or unique data sets that dive deeper than standard data like publicly reported earnings and other fundamentals — to help improve their investment process into public companies. Inspired by hedge funds, VCs and PEs are now starting to adopt alternative data for their investment analysis. However, they are running into a few challenges.

While there are tons of avenues to find alternative data on public companies as larger companies leave more signals or data to be gathered to infer their performance, there is a lot less quality data available on smaller companies under 500 employees. And VCs/PEs typically have less data science resources to process millions of data points on tens of thousands of companies they’re tracking.

Despite the challenges there are multiple ways to use modern, machine learning-powered data tools to harness alternative data and make better private company investment decisions.

Standard Data Vs. Alternative Data

When it comes to private company investments, the playing field isn’t necessarily even. Investors face highly competitive markets, and the company data that’s available offers little in the way of a competitive advantage. Once you do find the right company to invest in, it’s likely that another investor has already connected with the company and is ready to close a deal.

To find investment opportunities, VCs and PEs mostly rely on the same tools that provide access to firmographic information like industry, company size, and growth. They’re also able to access funding data to know which round of funding the company may have already accepted, if any.

But with everyone using the same standard data, this doesn’t paint a clear enough picture for the vast number of private companies out there. Alternative data, such as behavioral and web data, helps to complete the picture and gives investors the ability to find better investment opportunities and not miss out on lucrative deals.

For example, web research intent (company level behavioral data) can reveal company intent or actions. If several employees of a company are visiting a B2B website and engaging with a topic such as workforce planning, this can indicate that the company is planning for its next stage of growth. Assigning an intensity score to research topics based on volume and frequency of engagement can create a signal for investors looking to determine what the company’s priorities are, how soon the company is looking to grow, and when the company might need an investor to help them reach the next step.

Combining firmographic data with web data and other sources can also help investors filter through thousands of companies to find the ones that best match their investment criteria. Being able to filter through private companies using the same types of data typically available about public companies provides a competitive advantage for VCs and PEs allowing them to close more lucrative deals.

Neither standard data nor alternative data alone can offer investors the type of information they need to compete for valuable investments. Instead, both data types work together to help investors succeed in a competitive space by informing them of the best companies that fit their investment criteria and the right time to reach out to them.

Alternative Data Sources To Power Your Decision-Making

Now that you have a better idea of how alternative data works in the favor of VCs and PEs looking to invest in private companies, consider the types of data products that can provide alternative data.

Below are examples of standardized, machine-learning powered data products that can save your team the time it would take to collect and process the data yourself. Each product examines hundreds of thousands of data signals on over 4.8 million companies to present the most relevant data in reports that can help you determine the right-fit businesses to pursue.

CapRaise Score

The CapRaise Score from Fintent is the ideal data tool for figuring out the right time to reach out to companies that are looking to raise funding. The score can be used in two ways: to track and prioritize companies that are already on your radar or to identify companies that you should consider.

To create the CapRaise Score, Fintent examined thousands of companies that raised Series A/ B funding as well as Growth raises to determine common trends among their research behaviors. This alternative data is used to calculate a score for each potential investment opportunity that you can use to decide the best time to reach out to the company.

To see the CapRaise Score in action, visit Fintent.net and receive your custom report.

Company Search

This product lets you sift through millions of companies to find matches to your investment parameters (industry, company size and growth, funding round, etc.). Using a mix of standard and alternative data, as well as natural language processing, you can use Company Search to create interest lists that help you discover new companies that might not have been on your radar.

To stay up-to-date on the development of Company Search, follow Fintent on LinkedIn.

Company Growth Score

The last tool on this list, the Company Growth Score, analyzes several standard and alternative data signals such as an increase in the number of employees, company research activity, and other social and web signals. These data sources are used to predict company growth, allowing you to see what companies are growing today and which ones are positioned for future growth. It’s the ideal tool for prioritizing outreach and putting your time spent on outreach time to good use.

Stay tuned on LinkedIn to see when you can expect to start using the Company Growth Score.

Making Smarter Private Company Investments

When it comes to researching potential private company investment opportunities, VCs and PEs face some limitations. While standard company data is easy to come by, alternative data provides the true competitive advantage—and it’s much more difficult and time-consuming to collect.

Instead of spending valuable time and resources cobbling together homegrown signals, consider ready-to-use data products that combine standard and alternative data into reports targeted to your investment criteria. Find companies that are ready to grow and reach out to them at the opportune time ahead of the competition.

Get started by learning more on our website and/or booking a demo here.