Last year, California Business Journal wrote about San Francisco-based TRAC, in The Secret to Spotting a Unicorn, where founding partners Fred Campbell and Joseph Aaron described their VC’s unique business model. TRAC is an early-round venture fund that has compiled extensive data and applies the “Moneyball” concept to determine who are the SuperForecasters. From this information, TRAC tracks startups and investors to determine which companies are likely to be “the next unicorn.”
TRAC amassed a roster of 65 portfolio companies since May 2020. One of its portfolio companies, Human Interest, a fintech that does 401(k)s for small- and mid-size businesses, has already achieved unicorn status. A half dozen more of TRAC portfolio companies are right behind Human Interest, including Space technology innovator Stoke Space, Superplastic and Yumi.
When TRAC decides to invest, it moves quickly, wiring the money in a few days. But that’s just the beginning of the partnership. Once portfolio companies are working with TRAC, they receive access to customized Intelligence Dashboard, which provides comprehensive insights that would be costly and time-consuming to compile elsewhere. TRAC estimates that the information they provide would cost companies $100,000 a year for the data alone if they obtained it for themselves.
The recently released 3rd version of TRAC’s Intelligence Dashboard, says co-founder Fred Campbell, “is a more streamlined user experience than the previous version but still has the unique, tangible value add that differentiates us from other VCs. I pitched a CEO earlier today – and this is a highly in-demand company – and before I completed my demo, he said, ‘Stop. I want it. What do I do to get it?’”
Campbell explains that when companies are ready to move into their next round of funding, having an accurate valuation is essential. Just like you wouldn’t put your home on the market without running comps and knowing exactly what it should be worth, you don’t want to overvalue or undervalue yourself when seeking funding.
“We figured out over the last two years what companies really want and how they want to digest this information,” says Campbell. “Previously, we gave them their future valuation – after they raised their next round – but now we give them their current valuation on the home page, together with the Company’s Market Rating and valuation history by month.”
The tracker is very sensitive to what is going on in the marketplace so this demo was reflecting a valuation less than two weeks after the Silicon Valley Bank failure, which caused an uncharacteristic plunge. Campbell advises against seeking funding right now if it can be helped.
“The TRAC Market Rating tells companies how they’re doing today, when ranked against all the Company’s competitors,” he says. “For example, the company is in the 90th percentile. It’s very good but not the best. If it was at the absolute at the top of the market, its valuation could be worth approximately one billion more, as of right now. All that is graphed and easy to see.”
The next feature of the dashboard shows all the key competitive metrics that impact market rating. Again, relative to the company’s direct competition. The dozen metrics include: IGQ (investor-group quality) rank, web-traffic growth rank, and SEO, and media mentions rank, among others.
“These competitive metrics show the CEO exactly where the Company is strong and weak against competitors,” he says. “For instance, let’s say a Company’s website bounce rate is the worst among all competitors, but SEO rank is the best. The net-net is the Company is getting the most organic search traffic to their site but people aren’t staying. That tells us the website needs work.”
After current valuation and what they need to work on, companies want the dashboard to project valuation for the next round of fundraising and the next capital raise. It also recommends the quarter they need to close to ensure they hit the projected valuation.
A fundraising simulator allows companies to put in a variety of criteria to calculate the best strategy by pulling comps by target raise, capital raise, target valuation post raise, by industry and vertical markets. CEOs can adjust look-back time from 6 months to 5 years. It will show valuation, dilution and the most-relevant funding-deal comps. The broader the criteria, the more comps you’ll receive but tighter parameters will return four or five that are very closely matched.
“When our companies go to negotiate, they have better information than the VCs, period,” says Campbell. “It turns the tables. We had a company recently that was pitching a very tough investor and he gave them a figure. They came back to us; we ran the data and the valuation was $30 million more. The VC accepted our figure.”
Once you know what your company is worth, what you should ask for, and what your projected valuation is, you need to know who to pitch. Who are the best investors for your company? And once you determine who, the next question is how – how do you get a warm introduction to this person? Who do I know that knows this investor? The dashboard can tell you all the investors in various areas and companies and how they’re connected.
“As a CEO, you don’t want to be calling up VCs; you want somebody recommending you directly,” says Campbell. “They can say, ‘I’m an investor in this company and it’s an incredible – you need to be talking to them.’ It is a very valuable tool. It allows you to see all the investors in a company and connections you might have to any of those potential “perfect” investors for your company. Knowing this allows you to prioritize your targets and make direct connections.”
It will also tell you who has invested in your direct competition. The last thing you want to do is pitch to someone who will not invest but you risk giving company secrets.
As it approaches the third anniversary of its first investment in May, TRAC’s track record is showing impressive stats. It was ranked No. 2 by Prequin of about 620 early-stage funds in 2021 and 2022. (The company that ranked No. 1 in 2021 wasn’t in the top 10 in 2022 and the one that ranked No. 1 in 2022 wasn’t in the top 10 in 2021.) The VC industry expects an attrition rate of about 20% and so far, TRAC has only one company that failed to return investor capital.