Capital as a Service funds early stage companies based on their fundamental metrics and merit: no expensive coffees, “warm introductions” or designer pitch decks. Founders fill out a form, upload their transaction or engagement data, and then get a response: helpful data-driven feedback on their submission and their business, and hopefully a financing offer as well.
In 2017, Social Capital partner Ashley Carroll has led a minimum viable product (MVP) of CaaS that evaluated over 3,000 companies and led to the successful funding of several dozen of them.
Social Capital evaluated nearly 3,000 companies during its MVP and committed to funding several dozen across 12 countries. An interesting byproduct of the data-oriented approach was that CEO demographics skewed 42% female and majority non-white. (For context, female founders received 2.19% of venture capital funding in 2016.) In an email to press, Social Capital CEO Chamath Palihapitiya called the 42% data point “simply fucking awesome.”
It’s no surprise that the firm is taking this route. For years, Palihapitiya’s vision has been pretty clear — operational experience coupled with a focus on data. But as Social Capital begins to expand and veer toward being stage-agnostic, some people aren’t on board with the direction the firm is taking.
Palihapitiya seems to be hyper-focused on this data-driven approach, and he reiterated his plan to make Social Capital a full-service capital partner to the businesses it invests in throughout their life cycles. He added:
“CaaS is designed for entrepreneurs who are either over-served or under-served by today’s venture status quo. In that first bucket: founders who prefer a low-touch, highly efficient funding process, or don’t want to give up a large chunk of ownership in their company. In the latter: founders outside Silicon Valley and the US more generally who often don’t have access to Silicon Valley-based firms, nor the networks necessary to get the right warm intro.”
First of all, (for the curious) what is MVP?
Minimum viable product is a version of a new product which allows a team to collect the maximum amount of validated learning about customers with the least effort. A key premise behind the idea of MVP is that you produce an actual product (which may be no more than a landing page, or a service with an appearance of automation, but which is fully manual behind the scenes) that you can offer to customers and observe their actual behavior with the product or service. Seeing what people actually do with respect to a product is much more reliable than asking people what they would do. The primary benefit of an MVP is you can gain understanding about your customers’ interest in your product without fully developing the product. The sooner you can find out whether your product will appeal to customers, the less effort and expense you spend on a product that will not succeed in the market.
What exactly is CaaS?
Capital as a Service is a big step into the future, and like most big steps, it goes against the grain of a lot of conventional wisdom. The Venture Capital industry, which makes a living by betting on change that disrupts and reorganizes other industries, still holds this steadfast belief about itself: that’s just the way things are done here. It won’t change. CaaS intends to change this and disrupt the VC process.
The alpha version of Capital-as-a-Service (“CaaS”) works in the following manner. Founders engage with Social Capital online for diligence and funding. Without so much as a plane ticket or a coffee chat, entrepreneurs submit their transaction data to the automated diligence engine and CaaS can make funding decisions in a matter of hours. Overnight, through software, open for business on six continents 24 hours a day, 365 days per year.
With CaaS, the goal was to launch a new operating system for early stage investing, built on the principles of data-based decisions and architected for global reach and scale. A platform that would enable any founder, anywhere in the world, to short-circuit the arcane frictions of the traditional fundraising process and get straight to the heart of what matters: the product-market fit and the compounding value created for customers. CaaS concept sought to make decisions that were transparent, consistent, and unbiased, and to offer a feedback loop to entrepreneurs based on the predictions of the models.
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| (C) Social Capital LLP |
According to a post by Social Capital partner Ashley Carroll, the point-person of the company's CaaS effort;
"At Social Capital, we’re most excited about entrepreneurs that challenge assumptions, that take a non-consensus view of the world, and then validate that view with experiments and data.
It’s only natural that we’d apply that same lens to our own discipline. In that process it’s become clear that some of the assumptions upon which early-stage venture investing was founded don’t hold to be true.
With this insight, we’ve been working on something with the potential to disrupt the status-quo and accelerate our mission: capital-as-a-service, a new operating system for early-stage investing..."
The anatomy of traditional venture capital hasn’t changed in the past 30 years. Face-to-face interactions and human judgement, followed by (at best) a few thin Excel models and relationship-driven diligence creates a high propensity for bias and a low propensity for scale.
This is a classic example of a sector ripe for disruption. Today, every industry is being revolutionized by the application of data: from healthcare to logistics to media and beyond. If the operative question is whether early-stage investment decisions can be better made with data than intuition, using virtually every other discipline as a guide the answer is almost certainly yes...
No hoops, no $7 artisanal coffee chats, no designer pitch decks, no bias, no politics, no bullshit. Just the best teams with the best ideas, the best execution, and the best metrics funded on the merits of their achievements, not the status characteristics of their founders or the exclusivity of their professional networks...."
Social Capital CaaS process
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