VCs have been trying to crack the secret sauce to picking a winning startup for decades. But could an A.I. algorithm be just as good, or better, than human intuition when it comes to spotting the next tech unicorn?
That’s what Mattias Ljungman, the founder of Moonfire, a UK-based early-stage investing company is banking on. Today, the firm announced its second fund of $115 million. Yet unlike other early-stage funds, a proprietary A.I. algorithm the company built will be spotting many of the fintech, gaming, and health care companies that the firm invests in across Europe.
As a venture investor who helped found VC firm Atomico before starting Moonfire, Ljungman questioned whether the way VCs were traditionally sourcing founders was casting a wide enough net. “There’s a lot of mental labor involved in venture,” he explained to Fortune. “The world of venture has expanded dramatically and so it’s ridiculous to think ‘Hey, I know a few people, I have a big network of people, and therefore I’m going to have the best insights to the best companies in my specific domain,’” he explained.
Computer scientist and partner at the firm Mike Arpaia started building the firm’s A.I. platform in 2020 before the firm’s first $60 million fund launched in 2021. For the first year, he worked on the project alone, refining its data selection. After a year, two engineers joined the team and helped build the platform’s transformer models.
Now, up and running, the A.I.-powered platform works to source companies and help partners move the investing process along faster. The technology scours through 50,000 companies per week. Then, using its algorithm that Arpaia fine-tuned to Moonfire’s vetting system, it evaluates the startup’s founders, sector fit, and uses text that Moonfire investors themselves have written to gauge whether a startup would be a fit. “We’ve amassed hundreds of pages of ‘investment theses’ and our company evaluation uses this natural language text as a source of evaluation for companies,” explained Arpaia. The program then narrows down the startups to about a hundred per week and Moonfire’s human investors take a look to decide which firms are worth looking into further.
From there, the company’s technology assists investors as they vet each startup by making laborious tasks easier—like amalgamating all the information about a company in one place and putting it in the right columns, or writing an investment memo based on notes. “The machine doesn’t tell you what to do, the machine helps you with the filtering process. It’s a human and machine symbiotic relationship,” said Ljungman.
The firm, which has seven employees, also sources deals from traditional venture networks, however, those companies are still run through the A.I. algorithm. Ljungman explained that in Moonfire’s first fund, the split between companies sourced from his human investor network and companies sourced from the A.I. platform was about 75% to 25%. Yet in this fund, the firm is aiming for a 50/50 split.
They argue that using an A.I. platform can help combat some of the bias and favoritism that makes venture funding notoriously inequitable. “We can tap into the networks of high-quality first-time founders in underserved parts of Europe, and then on evaluation, we have much more control over the things that we take into account and the things we don’t take into account throughout the whole process,” said Arpaia.
While founders have stressed and strategized about getting the attention of VCs, maybe in the future they can wait for A.I. to find them.
Giphy sold for a discount: Yesterday Meta agreed to sell animated images startup Giphy to Shutterstock for $53 million, a stark markdown from the $315 million Meta paid to acquire the company in 2020. The announcement comes after a yearslong legal battle with U.K. antitrust regulators after they ordered Meta to sell the company in 2021 because they argued the deal limited competition. The sale comes at a time when antitrust scrutiny is intensifying on tech companies in both Europe and the U.S.
Lucy Brewster
Twitter: @lucyrbrewster
Email: Lucille.brewster@fortune.com
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Jackson Fordyce curated the deals section of today’s newsletter.
VENTURE DEALS
- Tyme, a Singapore-based digital banking company, raised $77.8 million in pre-Series C funding from Norrsken22 and Blue Earth Capital.
- OnKure, a Boulder, Colo.-based precision oncology company, raised $54 million in Series C funding. Surveyor Capital led the round and was joined by Deep Track Capital, Acorn Bioventures, Cormorant Asset Management, Perceptive Advisors, Samsara BioCapital, funds and accounts managed by BlackRock, and others.
- Episode Six, an Austin-based payment processing and digital ledger infrastructure provider, raised $48 million in Series C funding. Avenir led the round and was joined by Anthos Capital.
- RedDress, a Ponte Verda Beach, Fla.-based wound management solution platform, raised $26 million in Series D funding. ATHOS Biopharma, Investors Group of HCS Capital, and the Ragnar Crossover Fund invested in the round.
- Datasembly, a Tysons, Va.-based product pricing, promotions, and assortment data provider for retailers and CPG brands, raised $16 million in funding. Noro-Moseley Partners led the round and was joined by Grotech Ventures, Topmark Partners, and Staley Capital.
- Steno, a Los Angeles-based legal support services provider, raised $15 million in Series B funding. Left Lane Capital led the round and was joined by Clio Ventures.
- Waterplan, a San Francisco-based water risk climate platform, raised $11 million in Series A funding. Base10 Partners led the round and was joined by Giant Ventures, Transition Global, YCombinator, MCJ Collective, the Branson Family, and others.
- Nue.io, a San Mateo, Calif.-based quote-to-revenue platform, raised $9 million in seed extension funding. Bluefish Ventures and Penny Jar Capital co-led the round and were joined by NJP Ventures, Operator Stack, Information Venture Partners, and NextWorld Capital.
- boombox.io, a San Francisco-based collaboration platform for music makers, raised $7 in seed funding. Forerunner led the round and was joined by super{set} startup studio and Ulu Ventures.
- Kigo, a St. Paul, Minn.-based crypto loyalty subsidiary and NFT engagement platform, raised $6.5 million in funding. Valor Siren Ventures led the round and was joined by Auego.
- Gan.ai, a Perrysburg, Ohio-based generative A.I. video platform, raised $5.25 million in seed funding. Surge and Sequoia Capital India and Southeast Asia co-led the round and were joined by Emergent Ventures and others.
- Thena, a Palo Alto-based customer communications and intelligence platform, raised $5 million in seed funding co-led by Lightspeed and First Round Capital.
- Ballerine, a Tel Aviv-based risk decision platform, raised $5 million in seed funding. Team8 led the round and was joined by Y Combinator and Vera Equity.
- Kiwi, a San Juan, Puerto Rico-based credit history-building platform, raised $4.5 million in pre-Series A funding co-led by Advent-Morro Equity Partners, Altio Capital, and Independent Capital.
- Plenty, a San Francisco-based financial management platform for couples, raised $2.75 million in pre-seed funding. Phenomenal Ventures, 35V, former Wealthfront CEO Adam Nash, xtripe angels, and Inovia Capital invested in the round.
- Minoa, a San Francisco-based value and pricing management solutions platform for SaaS sales, raised $2.7 million in pre-seed funding. 468 Capital led the round and was joined by Mischief, AirAngels, Alumni Ventures, Fidi Ventures, and other angels.
- SureImpact, a Powell, Ohio-based impact management and reporting solution, raised $2 million in seed funding. Rev1 Ventures led the round and was joined by Queen City Angels.
- Num Finance, a Buenos Aires-based stablecoin issuer in Latin America, raised $1.5 million in pre-seed funding. Reserve led the round and was joined by H20 Scouter Fund, VC3, Ripio Ventures, and Auth0 CTO Matias Woloski.
PRIVATE EQUITY
- FreshEdge, backed by Wind Point Partners, acquired Panama Banana, a Chicago-based produce distributor. Financial terms were not disclosed.
- Primat Group acquired a majority stake in Curtis Metal Finishing Group, a Sterling Heights, Mich.-based services provider for metal fasteners, from HCI Equity Partners. HCI will retain a stake in the company. Financial terms were not disclosed.
EXITS
- FFL Partners exited ProService, a Honolulu-based HR solutions provider. Financial terms were not disclosed.
OTHER
- Florence acquired Zipnosis, a Minneapolis-based virtual care solution provider. Financial terms were not disclosed.
- Onfido acquired Airside Mobile, a Herndon, Va.-based digital identity-sharing technology company. Financial terms were not disclosed.
- Suma Brands, a Minneapolis-based Amazon FBA acquirer completed a merger with D1 Brands, a New York-based Amazon FBA acquirer. Financial terms were not disclosed.
FUNDS + FUNDS OF FUNDS
- GTCR, a Chicago-based private equity firm, raised $11.5 billion for its 14th fund focused on companies in the health care, technology, media and telecom, business and consumer services, and fintech sector.
- Moonfire Ventures, a London-based venture capital firm, raised $115 million for a fund focused on European early-stage startups.
PEOPLE
- Bull City Venture Partners, a Durham, N.C.-based venture capital firm, promoted Michael Lee to principal.
- Turnspire Capital Partners, a New York-based private equity firm, hired Fang Fang Fu as CFO and Riley McCabe as a vice president. Formerly, Fu was with ICONIQ Capital and McCabe was with Argand Partners.
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