Tuesday, February 26, 2019

"How an AI ‘Motherbrain’ helps venture capitalists pick investments"

From Tiernan Ray at ZD Net:

Swedish VC firm EQT Ventures, a division of the larger private equity firm of the same name, uses a neural network program called Motherbrain to identify and prioritize investments. The technology has seriously improved its ability to scope out deals early in the pipeline, says partner Henrik Landgren.
In a venture capital firm, you want different talents that will enrich the investing team, such as a person from industry, say, mixed with people from the finance world, and perhaps people with a legal or public policy background.

You may even want an automaton that crunches numbers.
"Motherbrain" is the name that Henrik Landgren, operating partner, and his colleagues at venture capital firm EQT Ventures have given to the computer program that they increasingly turn to in order to get an early read on potential investments. 

Motherbrain uses convolutional neural networks, or CNNs, the most popular form of machine learning, to review time-series data about companies to help guide where the firm should invest. The technology has seriously improved EQT Ventures's ability to scope out deals early in the pipeline, Landgren said in an interview with ZDNet.

"Much of it is just learning what is the best process we should pursue, what should we assess and in what order," he explains, "to increase the capacity of how many companies we can look at." 
EQT Ventures is part of a much larger organization, the 25-year-old private equity firm EQT, which is run as a partnership and based in Sweden. The Ventures arm has raised €566 million in funds to invest. EQT, which has raised roughly $50 billion for investments over the years, is rumored to be contemplating a listing on the Swedish stock exchange, according to a recent Reuters report.

Being a young outfit -- EQT Ventures was only formed three years ago -- the team is expressly focused on sourcing deals. There are millions of companies the world over, explains Landgren. With just thirty team members, and even with access to EQT's broader workforce of 540 people, the search for prospects can be a daunting task.

With Motherbrain, the firm has assessed 10,000 companies. Much of the leverage is just knowing what firms a human should look at.

"Of all the 'Nays' we do," he says, referring to the deals ultimately passed on, "99% of the cases, we could cut out that time earlier and assess a new company instead."

While it's too soon to speak of how Motherbrain has improved the investment "yield" for EQT Ventures, Landgren is convinced the program is helping to avoid his team missing opportunities.

"There are companies we would not have found, and companies we would not have prioritized, without Motherbrain," says Landgren, who speaks of the computer program at times as if it is a new associate on the team. Landgren himself joined in 2016 from Spotify, the streaming music company, where he was vice president of analytics. He started computer programming when he was six, but at some point realized, "I was not going to be a coder all my life; I'm more interested in the uses of technology."...

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