Disrupting the Venture Capital Firm-- An Interview with Chris Farmer @ Signal Fire Ventures

Today we published an interview with Chris Farmer of Signal Fire Ventures where we discussed his supercomputer, Beacon, and how it is disrupting the Venture Capital investment process. In the interview we covered the following:

• Chris’ background and path to venture
• The firm’s thesis and your main focus at SignalFire
• You talk about the four big founder pain points that you’ve observed… what are they? (talent, advice, informed investors, and network access)
• Number one pain point is hiring top engineers… Tell us about your Data platform, Beacon, and how it addresses this pain point?
• Is Beacon a sourcing tool, analysis tool or both?
• Can you give me an example of what you see when you look at a sector, sub-sector or even at the company level?
• Does this data really exist with very early-stage startups or nascent sectors, before they’ve really emerged and have traction?
• What are the sources for the data?
• I’ve worked for companies that had a difficult time getting one database to talk to another. Can you really source unstructured data, from limitless sources and structure it in a way where it’s streamlined, uniform, single record and can be used to drive insights?
• Do you think about data that is empirical and fixed vs. data points that can be influenced… and if you find an strong startup profile that is missing a couple of key elements that can be influenced, will you engage and attempt to address those factors w/ the founder?
• I’ve looked over the consumer and enterprise sector lists where you invest… and it’s a pretty broad list. Can you really have a data engine that works well for such a varied and broad landscape?
• Are you conducting a sector by sector sensitivity and regression analyses?
• Why he’s using Beacon to make VC investments when their are numerous other applications that may have more economic value
• How he’s created an engaged, active advisor network that are also LPs in the fund
• What characteristics the best advisors share
• Chris’ thoughts on the surge in micros VCs and how that has impacted the asset class
• Chris’ advice for founders raising initial capital
• Wrap-up of Key Takeaways & a Tip of the Week

Guest Links:

• Signal Fire Ventures
• Chris on Twitter
• Signal Fire on Twitter
• Techcrunch Article:  Watch Out, VCs: Chris Farmer Plans To Massively Disrupt The Industry
• Part 1 of the interview w/ Chris

Key Takeaways:

1- Deconstructing Beacon

Beacon is a connected platform that starts w/ sourcing but also does monitoring, context, diligence, syndication and most importantly, per Chris, portfolio support. It’s a data platform that looks like a Bloomberg terminal for the startup industry. They started building it seven years ago and they employ a full-blown engineering team of data scientists and tech engineers. Beacon tracks a vast array of data on 6M different companies. And Chris started with first principles, asking “what are the KPIs that the management teams of these companies are measuring?”… those are the same elements we should measure with Beacon. It analyzes items including customer behavior, frequency, engagement, CLV, consumer transactions, financial flows, quality of those flows, news sentiment and also team construction and quality, just to name a few.

And signal fire’s platform isn’t just for the investors. There is a UI for advisors and most importantly founders as well. Founders can utilize heir robust SaaS recruiting platform to address the key need of early-stage companies… recruiting top talent. With Beacon, Signal Fire has set out to tech enable the entire value chain of a venture firm from end-to-end. Early indications from folks in my network are that it’s an impressive platform indeed.

2- The Prepared Mind

Signal Fire did not coin the concept of “the prepared mind” but Chris does follow it. The approach that came out of Accel has an emphasis on heavy research on existing domains. The creation of market maps that help visualize the landscape and reveal opportunities. In a previous episode, David Cowan discussed his approach to the Space vertical that leverages this methodology. And in Chris implementation, he is constantly refining the maps. He meets with LP experts and founders to go much deeper and broader than they could do w/ data alone. The result is that Signal Fire is often much less bullish on the en vogue sectors and vice-a-versa. Their investment in pizza making robot company, Zume, certainly illustrates their fresh perspective on an oft-ignored industry.

3- The Common Thread of Success 

I asked Chris for a common thread that he’s noticed across successful startups. And I really enjoyed his response. The common thread in winners are those companies that are doing things full-stack. They are creating an end-to-end solution that is vertically integrated. Where a company can be its own customer in order to provide a better solution for the end consumer. I discussed this concept w/ Charles Hudson in a previous episode. We talked about finding the place within the vertical supply stack that enforces discipline on the chain and drives the most value. Chris point was compelling in that he looks for startups that own the chain, not just a part of it.

Tip of the Week:  Tail Wags Dog — The Affinity Investor

You can listen to the full interview on iTunes or on fullratchet.net.