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Alt Data In Private Markets And The Future Of Alt Data For Investors

Partner content produced in association with Neudata

Traditionally the domain of the hedge fund set, alternative data is being ever more adopted by private markets investors to help them find an edge. AlphaWeek’s Greg Winterton spoke to John Elton, Partner at Greycroft, to learn more about this trend.

GW: John, how would you describe the current state of the use of alternative data in the venture capital industry?

JE: I’d say we’re rounding first base. Firms are using it for different reasons; idea generation, sourcing, portfolio analysis, competitive insight and, more broadly, macro trends to understand where things are going. For example, when we invested in Plated we used Earnest Research to validate that they had the best business model in the space. At this stage if you are a consumer investor and you are not using this type of tool it’s a real question mark. If you poll VCs using alternative data, you will find that most have built it into a broad swath of what they do, but there is plenty of room to grow.  We think alternative data is a goldmine and firms that integrate it into all facets of their business are going to see things faster, make better decisions and have better returns.

GW: What traits separate the firms who will end up as the winners in alternative data from the rest in the next, say, 5 years?

JE: The winners in alternative data will be the companies that have the data sourcing element – you need a set of sustainable data sources. Secondly, making signals out of that data is crucial. Then you need the productization and presentation layer that makes it all work for clients.  The overlay to all of this is having a robust compliance function. That’s a core attribute of a scalable winner in this space. Some firms do individual pieces of this well, but the winners will have all of those attributes. Just as traditional data vendors were built at the advent of the telegraph or computers, today’s alternative data vendors have been started at the advent of large data base technology and machine learning that will give rise to the next Bloomberg and Thomson Reuters of the world.

GW: You mentioned previously that you think that the current use of alternative data in venture capital circles is ‘rounding first base’. What are some of the barriers to increased adoption by VC firms?

JE: It comes down to innovation. Venture capitalists run into the same challenges as other firms. You run your business and you have a bunch of things going on – is this a top-three priority for your company? Right now, that’s not always the case. And it’s expensive to hire a data team or license a product, and some firms don’t have the knowledge to manage data scientists and get the best out of them. But the competitive nature of VC is driving firms to adopt alternative data. These barriers are short-term in nature and will come down eventually as the best firms deeply integrate alternative data into their investing as we have seen in the hedge fund world.

John Elton is Partner at Greycroft. He will be presenting ‘Alt Data in Private Markets and the Future of Alt Data for Investors’ at the Neudata Summer Online Summit at 10.35am ET / 3.35pm GMT on Thursday, June 17th. Click here for more information and to register

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