- When Arjun Sethi was a founder, he thought the VC pitching process was wildly subjective and biased.
- So he cofounded Tribe Capital in 2018, which invests based on sophisticated data modeling.
- Tribe Capital's data created Insider's Seed 100 and Seed 25 lists of the best seed VCs.
Founder pitch meetings have a lot in common with dating. Founders tell their life stories, their adversity, why their company means something, and investors want to be swept off their feet.
If it goes well, they take a leap of faith and commit.
"That sounds crazy to me," said Arjun Sethi, a cofounder and partner at Tribe Capital. "But that is how some people make investments."
In fact, it's how most VCs make investments, especially at the early stages. Renowned seed VCs espouse the virtue of trusting their gut and picking founders they love, even if the product is still just an idea in a pitch deck.
Founders Fund's Keith Rabois said he's a "founder-driven investor," instead of being "technology-driven" or "market based." Famed VC Marc Andreessen wrote that, when a startup is new, "the decision is driven almost entirely by the people."
Sethi's Tribe Capital – cofounded with fellow Social Capital alums Jonathan Hsu, Ted Maidenberg, and Jake Ellowitz – rejects that notion entirely. Sethi said that when a founder pitches them, he simply tells them, "Give us access to your raw data, and we'll do the work from there."
For every founder it meets, Tribe Capital analyzes the startup's data by comparing them to the thousands of data sets it's collected over the past decade or so. The process usually takes a few days.
Even if Tribe doesn't invest, every company receives a report of its strengths, weaknesses, and how it stacks up against similar companies.
"We want to make you special, but you only become special if you understand the nuances of what you do really well," Sethi said.
It's worked so far. Tribe now has over $1 billion in assets under management, it said. In its three years, Tribe has nabbed stakes in some of the hottest startups – such as rocket startup Relativity, enterprise software Instabase, and Carta, now valued at $6.9 billion.
The Seed 100 and Seed 25
Sethi's been in the startup world his whole career, cofounding two tech startups. After his companies were acquired, he spent time at Yahoo, before becoming a partner at Chamath Palihapitiya's Social Capital.
Around 2011, he began floating the idea of building a data-based model for investing. He said he'll never forget the time he told a "well known" investor his plan. The VC told him that the idea was "stupid."
The investor said that if the model actually worked, it was going to be copied and then become "commoditized." He advised Sethi to stick to age-old VC wisdom: "Figure out how to deploy as much capital as possible into the people that you like," Sethi recalled.
Sethi didn't listen, going on to cofound Tribe Capital in 2018.
Lately, Tribe Capital has taken data modeling further than sourcing investments. Sethi's also using it to find and build out a network of partnerships, identifying other investors Tribe wants to work with.
To create a researched list of top seed investors, the team spent about six months poring over Crunchbase and PitchBook data.
"It was imperative to us to base the effort on ground truth and not gut impressions around who we felt were good or bad investors," Sethi said.
Eventually, the team developed 25 areas to measure an investor's performance, looking at factors such as how many of their portfolio companies reached growth stages and the number of exits. That research was the basis for Insider's Seed 100 list of the top seed investors.
That final list was, unsurprisingly, mostly male because some of the key measures were based on historical outcomes, and women have, for many years, been cut out of much of Silicon Valley's dealmaking. (The National Venture Capital Association's diversity report finds that only 16% of investment partners are women.)
So Insider and Tribe also created a list of the top 25 female seed investors.
Sethi and the Tribe team plan to keep pushing the boundaries of the venture world.
He said they're a team that disavows gut feelings in favor of hard numbers, that takes a deep look at your business and gives you quantifiable ways to grow.
"That's the team you get," he said. "Rather than just the capital and maybe some feel-good vibes."