Google Ventures shelves its algorithm

Google Ventures has mothballed an algorithm that for years had served as a gatekeeper for new investments, Axios has learned from multiple sources.

Why it matters: This is a strategic sea change for one of venture capital’s most data-driven firms, and a Big Tech acknowledgement that human judgement shouldn’t always be automated away.

Backstory: Axios first reported on GV’s algorithm in 2018, explaining how it had begun as a due diligence tool to aid a nascent team that had more experience in engineering than in investing.

• It later evolved into a “stoplight system” that could effectively halt deals in their tracks.
• GV investors sometimes tried to game the algorithm by manipulating the inputs. In general, however, the firm abided by the machine’s red lights (plus greens and yellows). As we wrote previously, it became GV’s de facto investment committee.

State of play: There doesn’t appear to be a single incident that killed off the algo.

• Instead, it appears to have been a gradual process born of growing self-confidence (GV now has nearly 40 investors managing around $8 billion in AUM) and growing frustration (particularly when the algo would rule against follow-on investments for existing portfolio companies, as the deal market deteriorated).

The bottom line: GV still relies heavily on data. After all, this is the corporate venture arm of Google. But data has been relegated to its original role as aide, rather than arbiter.