While many VC firms still use human tactics like feeling and intuition, Axios reports that Alphabet’s venture capital arm, GV (formerly known as Google Ventures), makes investment choices based on a market savvy algorithm the employees refer to as “The Machine.”
Started in 2009 GV became one of the first VC firms to recruit engineers to work with portfolio companies on “technical challenges.”
But back then, there weren’t many portfolio companies to help
So, GV tasked the engineers with building a tool they called “Vortex,” to manage investment flow (and to pick up the slack for their inexperienced VCs).
Thus, ‘The Machine’ was born.
With an abundance of market data, staffers plug their deals into ‘The Machine,’ and its algorithm ranks deals on a 10-point scale, and spits out decisions via a red light/green light system.
Green means go
Last year, CNBC reported that GV had $2.4B in assets under The Machine’s leadership, including brands like Uber and Walker + Co.
The Machine was originally only meant to aid GV’s inexperienced investors, but, sources say it eventually became the “de facto investment committee.”
And not all employees are into it: Some reportedly fear that taking the “gut” out of investment decisions has forced investors to miss big opportunities.
But GV’s CEO Bill Maris disagrees: In 2013 he told the NY Times It would be “foolish” to make investments on intuition when they have the world’s largest datasets and cloud infrastructure in the world.