Introduction

Traditional due diligence in private equity and venture capital is leaving insights on the table, and missing opportunities and pitfalls. Enter alt-data.

Due Diligence Beyond the Numbers:

In the fast-paced, competitive world of venture capital and private equity, staying ahead of the curve is getting increasingly critical and harder. Traditional financial metrics and business performance indicators have long been the backbone of investment research.

However, relying solely on these conventional data points can lead to missed opportunities and overlooked risks. That’s why savvy investors are turning to alternative data – a treasure trove of non-traditional information sources that provide deeper insights into a company’s true potential, and surface easily-missed opportunities and pitfalls.

In this post, we’ll explore eight powerful ways alternative data enriches due diligence and decision-making for institutional investors. From employee reviews to online presence, we’ll delve into why these indicators matter, the insights they offer, and the key data points investors should be tracking.

1. Employee Reviews: The Insider Perspective

 

 Why It’s Important

Employees are the lifeblood of any organization. Their satisfaction, engagement, and perception of the company’s leadership directly impact productivity and, ultimately, financial performance. Employee reviews offer unfiltered insights into the company’s culture, management effectiveness, and potential red flags that aren’t apparent in financial statements.

 Insights and Takeaways

• Company Culture: A positive culture fosters innovation and retention, while a toxic environment can lead to high turnover and reputational damage.

 

• Management Effectiveness: Consistent complaints about leadership may indicate underlying issues that could hinder growth.

 Key Data Points to Track

• Overall Employee Satisfaction Scores: Trends over time from platforms like Glassdoor and Indeed.

 

• Common Themes in Reviews: Recurring positive or negative comments.

 

• Turnover Rates: High turnover can signal internal problems.

2. Online and Social Media Presence: The Digital Footprint

 

Why It’s Important

In today’s digital age, a company’s online reputation can make or break its success. Social media platforms and online channels are where consumers often have their first interaction with a company or product, or voice their opinions later, and these sentiments can influence market perception

Insights and Takeaways

• Brand Sentiment Analysis: Understanding how the public perceives the company.

 

• Customer Engagement Levels: High engagement can indicate strong brand loyalty.

 

• Crisis Response Capability: How effectively a company manages negative publicity.

 Key Data Points to Track

 

• Social Media Metrics: Follower growth, engagement rates, sentiment analysis.

 

• Online Reviews: Customer feedback on sites like Yelp, Amazon, or specific industry forums like G2 or Capterra for technology

 

• Search Engine Trends: Increases or decreases in search volume for the company’s products or services.

3. Leadership Interviews and Public Statements: Decoding the Vision

 

Why It’s Important

The leadership team’s vision, strategy, and integrity are pivotal to a company’s success. Interviews, public speeches, and statements provide insights into their priorities and ethical compass.

 

Insights and Takeaways

 

• Strategic Direction: Clarity and feasibility of the company’s future plans.

 

• Leadership Style: Collaborative, authoritarian, innovative—styles that impact company culture.

 

• Transparency and Accountability: Willingness to address challenges and mistakes openly.

 

Key Data Points to Track

 

• Key Messaging: Recurring themes in speeches and interviews.

 

• Tone and Demeanor: Confidence levels, openness, and adaptability.

 

• Media Reactions: Analyst opinions and critiques following leadership communications.

4. Supply Chain and Partnership Networks: The Web of Influence

 

Why It’s Important

A company’s relationships with suppliers, partners, and distributors can significantly affect its operational stability and scalability.

 Insights and Takeaways

 

• Supply Chain Reliability: Diversification and resilience against disruptions

 

• Quality of Partnerships: Strength and longevity of key relationships.

 

• Dependency Risks: Over-reliance on single suppliers or partners.

 Key Data Points to Track

 

• Network Mapping: Visualization of supplier and partner networks.

 

• Contract Durations: Length and terms of key agreements.

 

• Geopolitical Risks: Exposure to regions with political or economic instability.

5. Patent Filings and Intellectual Property: The Innovation Index

 

Why It’s Important

A robust portfolio of patents and IP indicates a company’s commitment to innovation and can provide competitive advantages.

 Insights and Takeaways

 

• Competitive Edge: Protection against competitors copying innovations.

 

• Market Expansion: Ability to leverage IP for new products or markets.

 

• R&D Focus: Investment in future growth areas.

 Key Data Points to Track

 

• Number of Patents Filed: Trends over time.

 

• Patent Citations: How often others reference the company’s patents.

 

• R&D Spending: Proportion of revenue invested in research and development.

 

• R&D Spending: Proportion of revenue invested in research and development.

 

6. ESG and Sustainability Metrics: The Ethical Investment

 

Why It’s Important

Environmental, Social, and Governance (ESG) factors are increasingly important to investors and consumers alike. Companies with strong ESG practices are often more resilient in the long term.

 Insights and Takeaways

 

• Regulatory Compliance: Adherence to environmental and social regulations reduces legal risks.

 

• Reputation Management: Positive ESG practices enhance brand image.

 

• Operational Efficiency: Sustainable practices can lead to cost savings.

 Key Data Points to Track

 

• Carbon Footprint Data: Emissions and efforts to reduce them.

 

• Diversity and Inclusion Metrics: Workforce composition and equity practices.

 

• Governance Structures: Board diversity, executive compensation, and shareholder rights.

 

7. Web Traffic and App Usage Statistics: The Engagement Metric

 

Why It’s Important

For companies with an online presence or mobile applications, web traffic and app usage data provide direct insights into customer engagement and growth potential.

 Insights and Takeaways

 

• User Acquisition and Retention: Growth in new users and loyalty of existing ones.

 

• Engagement Levels: How actively users interact with the platform.

 

• Conversion Rates: Turning engagement into sales or desired actions.

 Key Data Points to Track

 

• Monthly Active Users (MAU): Number of unique users each month.

 

• Time Spent on Platform: Average session duration.

 

• Bounce Rates: Percentage of visitors who leave after viewing one page.

Embracing a Holistic Approach to Due Diligence

The investment landscape is evolving, and so should the tools and data used for making informed decisions. Alternative data sources offer a multi-dimensional view of a company’s operations, challenges, and opportunities that traditional metrics may miss. Company research and due diligence powered by Wokelo AI incorporates a wide range of non-traditional indicators, allowing institutional investors can uncover hidden insights, mitigate risks, and make more strategic investment choices.

In a world overflowing with data, the key is not just having access to information but knowing which data points matter and how to interpret them. By harnessing the power of alternative data with Wokelo, investors can equip themselves to navigate the complexities of modern markets.