Event Recap: Headline VC
We had the amazing opportunity to hear Nicolas, Principal at Headline VC, speak with us recently. Headline, which raised over $950M across its funds last year, is known for its unique data-driven approach to investment. According to self-reported data collected by the National Bureau of Economic Research, only 2% of closed VC deals globally originated from quantitative sourcing. At Headline, however, around half of their investments were identified through Searchlight, their internal software where they track analytics of over 7 million online entities. Read on to learn how they are leveraging Searchlight and other software products to source deals and analyze financial metrics.
Headline VC — The Basics
Headline VC was founded in 1998 in Europe under the name BV Ventures. Over the decades, it has rebranded and expanded globally, with investment teams now in the US, Latin America, Europe, and Asia. They invest across early- to growth-stage companies, and they specialize in areas including Fintech, E-Commerce, Digital Health, Developer Tools, and more. They have made over 550 investments with over 200 exits over the years. Some of their notable investments include Bumble, Groupon, and GoPuff.
Searchlight — Sourcing Technology
Searchlight is the sourcing software tool that Headline developed in 2010. They use a web scraper to look for websites across the internet that are likely to be startups (i.e. if they have a “pricing”, “product”, “solution”, or “contact” page). From the 7 million entities that they have identified, they then look for additional signals for growth. These include metrics such as website visitors, backlink numbers, DNS cloud server calls, and other more niche metrics such as reddit mentions for consumer companies and github forks for developer tools. Searchlight also takes snapshots of the web pages over time so Headline can track how the startup has pivoted or grown over time. Noteworthy websites are then highlighted to VCs at headline, where they can conduct additional research or reach out to the founders directly.
Deepdive — Financial Insights for Startups
After the initial sourcing stage, Headline also uses their own software to extract trends and insights from the startups’ financial data during the due diligence process. One important feature of Deepdive is its emphasis on cohort analysis, which is the process of dividing the customer base into cohorts based on when they became paying customers. This gives a far more granular view of the churn rate, LTV / CAC ratio, and capital efficiency of the startup as it is iterating on its product or business model. For instance, it can highlight whether a marketing message in a given month attracted customers that showed better retention rate than customers acquired with different marketing strategies. Moreover, Deepdive is publicly available today. Headline has provided their software and additional educational resources to help startups track their performance more efficiently.
Data-Driven Sourcing — Costs and Limitations
Of course, such a sophisticated set of software requires a lot of resources to build. Headline has a 18-person engineering team to build and maintain their database. They also work with various data brokers around the world to obtain regional web traffic data and more. This unique data-driven approach also comes with unique limitations, such as internet privacy laws (GDPR) in the EU or poor data quality from other regions. Nevertheless, the use of data has given Headline a unique advantage over many other VCs, as they can turn to both their network and Searchlight for their sourcing process.
Becoming a VC — Personal Advice
Nicolas also shared his personal philosophy on how to become a good VC. Getting repetitions in is a big component. A key milestone is to speak with one thousand founders, Nicolas said, as it builds up pattern recognition skills. Another source of knowledge is books, as there are takeaways to be gleaned from past case studies, even if present conditions are very different.
Thanks again to Nicolas and Sophy from Headline for coming to speak with us!
