Algorithms

We are working on a variety of algorithms that leverage data from CB Insights which will meaningfully help SMBs, startups, and entrepreneurs become more successful.

Our first publicly released algorithm is the Funding Recommendation Engine (FRE).

The Funding Recommendation Engine (FRE)

The FRE works by analyzing the funding history of “funders” of businesses in the United States and then algorithmically matches them to your business based on inputs you provide. The FRE algorithm includes the funding history of:

• Venture capital firms
• Angel investors
• Private equity firms
• Banks
• Government grant programs
• Family offices

Why is the FRE valuable? - Pattern Matching for Entrepreneurs

In the last 2 years, over 8000 investors funded 2 or more small and medium sized businesses / startups? Most are not household names, but they’re putting money where their proverbial mouths are. If you are seeking funding, you should know who they are. Awareness of these financiers means more opportunities to raise money from the right partners at terms that are better for you and your business.

The FRE does this for you.

It uses inputs about your business and your funding needs and mines data we have about the funding history of investors and funding institutions and algorithmically delivers recommendations on who matches with your business. Investors often refer to their ability to figure out who to invest in as “pattern matching”. The FRE is “pattern matching” in reverse to help business owners identify who they should spend time talking to.

We hope and believe this is helpful on multiple levels:

• It can help you identify investors you’d never heard of (we call this "investor serendipity")
• It shows you investors who match your business based on what they have invested in vs. what they invest in. What investor websites say is often not an accurate representation of what they invest in
• It saves you hours of time from researching investors individually to determine if they fit with your business. The FRE helps you do that and simultaneously identifies investors you may not have ever heard of
• You can use ChubbyBrain to conduct investor reverse due diligence on your matches by looking at their portfolio of past investments and the background of the people at the firm

The Funding Discovery Engine uses a multi-step, weighted decision tree algorithm to pair your company with investors who are a strong potential fit to fund your business. Sound complicated? Unfortunately it is, but we're gonna take our best shot at explaining it in terms that won't make you sleepy and/or nauseous.

First, the FRE surveys you on the following areas:

• Basic Info: What does your company do?
• Funding: How much money do you need? How much money have you raised in the past?
• Traction: What stage is your company? How many customers? How much revenue? How many employees?
• Location: Where is your company located? Are you willing to relocate?
• You: How much experience do you have? What is your level of education? Is this company your full-time or part-time gig?

We then crunch all of this information, compare it to thousands of transactions in our database from the last two years (comprising over 8,000 investors) and look for the best matches. It sounds pretty simple, but, as they say (or we say), the devil is in the details. On one end of the spectrum, there are pockets of very active investment (e.g. Internet in Palo Alto), so you might think our job is simple - just give you 20 brand name investors and move on to the next customer. However, that would completely miss the point of this exercise as we're not looking to give you a list of just any investors, but a list of the 20 best investors - weighting and scoring your preferences against the historical investment information in our database.

And on the other end of the spectrum, there are pockets of virtually no investment (e.g. Healthcare in Fargo - sorry North Dakota!), but telling you "tough luck buddy" would be too easy (and again miss the entire point of this exercise). Sure - maybe you're one of the very few people to ever start a Medical Device company in North Dakota, but if we've learned anything from building the FRE, it's that investors often go outside their publicly-stated geographic, and sometimes even industrial, areas of investment. So just as we did in the Internet/Palo Alto example, we return the best matches to fund your business. In every instance, we try to give you 20. But if the matches fall below a certain scoring threshold, we stop and return you as many as we can within some threshold of still making sense.

Sometimes the FRE may return some results that look a little strange at first glance. For example, you're in New York and you tell the FRE that you don't want to relocate, but nonetheless you're presented with investors in Pennsylvania, Massachusetts and beyond. However, remember: the key isn't where these investors are located, but rather where their investments are located! So before dismissing suggestions that may seem nonsensical, trust that the FRE is weighing and scoring multiple attributes simultaneously to return the very best funding recommendations.

I'm seeing strange FRE recommendations that fall outside my industry preference. Why?

Sometimes the FRE may return some results that look a little strange at first glance. For example, you've specified that your company is in Internet and you receive a few investors whose descriptions indicate that their primary focus is Energy or Healthcare. In many cases, investors fund companies outside of their core industry-focus without really advertising it. However, remember: the FRE is only interested in where investors spend their money, not where they say they spend their money. So before dismissing suggestions that may seem nonsensical, trust that the FRE is weighing and scoring multiple attributes simultaneously to return the very best funding recommendations.

I indicated that my company is pre-revenue, but the FRE recommends some investors who are primarily interested in revenue-generating companies. Why?

At times, the FRE may return some results that appear to fall outside of the revenue or maturity parameters you've specified. The key word here is "appear". In many cases, investors who say they primarliy invest growth equirt into mature companies are also making investments in much smaller, sometimes pre-revenue companies as well. Our algorithm uses the last two years of actual, real-life funding events and pays no attention to how investors advertise their firms. So before dismissing suggestions that may seem nonsensical, trust that the FRE is weighing and scoring multiple attributes simultaneously to return the very best funding recommendations.

What's the best way to classify the Sector / Industry / Sub-Industry of my company?

Sector, Industry and Sub-Industry are important drivers of the FRE algorithm and unfortunately they are also a bit subjective. In other words, we may classify your company differently than you would, which in turn, could lead you down the path of a less optimal set of investor recommendations.

As a rule of thumb, if your company has a significant web component to it, look closely at Industries/Sub-Industries that fall within the Internet sector. For example, the Internet sector contains business-related applications such as cloud-based Analytics software (e.g. Internet -> Internet Software & Services -> Business Intelligence, Analytics & Performance Mgmt). A common "mistake" (and we use the term lightly) would be to put this company somewhere in the Business Products & Services sector which represents companies and/or funding events that are primarily brick & mortar.

The CB Insights investor newsletter is a newsletter distributed only to investors that contains a detailed list of companies who are actively seeking funding. By opting into this option on the FRE, your company may be featured in one of these newsletters, which offers potential exposure to prominent investors.

We're currently developing pages on ChubbyBrain that feature companies who complete the FRE. By opting into this option on the FRE, your company may be featured on ChubbyBrain which may include a link to your site.

If you don't see the email in your inbox from fre (at) chubbybrain.com with the subject line "Funding Recommendation Engine Results", check your spam folder. If you still don't see the e-mail, contact us at fre (at) chubbybrain.com from the email address you used when submitting your information to the FRE, and we will send you a list of your results. Also, be sure to add fre (at) chubbybrain.com to your contacts.

What the FRE Does Not Do

ChubbyBrain and the FRE are not a matchmaking site between businesses and investors. We do not promise to send your idea or plan to those investors that we’ve determined are your closest matches. Our goal is to help you identify investors you may want to talk to, but we think it is best to let you approach them on your own terms and when you are ready.

You may find the Brain’s Guides on Angel Investing, Venture Capital, Small Business Administration Financing and Investor Reverse Due Diligence useful before approaching investors that the FRE identifies for you.

In some cases, we may highlight a particularly interesting business on ChubbyBrain or in our CB Insights Investor Newsletter which goes out to over 2000 angel investors, VCs, Pvt Equity professionals and investment bankers. Please note that only companies who opt-in while going through the FRE may be featured.

I have feedback and need to tell somebody!!!

We welcome all feedback, good (hopefully), bad (hopefully not, but we can take it) or indifferent (bo-ring) to fre (at) chubbybrain.com. Thanks!