Company that spends all its time analyzing VC deals finally raises money. (But not from a VC)
If there were such a thing as a Pando drinking game it might go like this:
Drink every time Paul Carr mentions “Las Vegas”
Drink every time Mark Ames mentions “libertarians.”
Drink every time Dan Raile gets kicked out of an event.
Drink every time Sarah Lacy uses the phrase “according to CB Insights…”
You’d be wasted.
CB Insights is pumping out some of the most amazing data, sassiest newsletters, and compelling lenses on the insanely frothy venture market. As everyone looks for a sign the thing we all know is gonna turn starts to turn, CB Insights is one of those publications the industry is watching.
But like so many companies they analyze: CB Insights co-founder and CEO Anand Sanwal has started thinking like them… sort of.
lthough he’s always run the company as a bootstrapped, profitable enterprise, like a lot of other entrepreneurs, he started to see the value in putting some extra cash in the bank when the opportunity presented itself. But unlike so many of the companies he studies, he raised money not from a VC or a mutual fund or a hedge fund or an Asian multinational. But the National Science Foundation. What?
Part of the appeal was that the funding is a grant and hence non-dilutive. But the extra cash will also allow the company to push into new product areas, like a new product that’s centered around sales teams, not VCs. He sees the data as clearly as anyone and knows some sort of correction is coming. He doesn’t want all his eggs in the venture basket-- either in terms of investors or customers.
I caught up with Sanwal last week to discuss his news which was released this morning. The following are edited excerpts of the conversation.
SL: Why’d you finally raise money?
AS: We have grown quite a bit. We ended the last year at 23 or 24 people and are 54 now and will probably be 70 by end of year. We went to the National Science Foundation a few years ago and said we think we can predict the health of private companies using public data. They liked the idea because if we are successful when the recession hits, we might be able to offer a tool that provides a nuanced understanding of where private companies are. They gave us a small grant then and this $1.15 million grant now. It’s a nice amount, and it’s non-dilutive.
When we go pitch into big enterprise companies, we always have people ask “Who has funded you?” They seem to care quite a bit. So it’ll help with that.
On the product side, we have an announcement too. The way this thing started was pretty organic. I used to work in venture and M&A (running a $50 million fund for American Express), and this was initially started to solve the pain points of my old job. We’ve been watching sales managers trying to use our product. It isn’t made for them, but they like the data so they were forcing their use case into our product.
If you look at how salespeople do their job today, it’s pretty archaic. They say, “We just read about this company on Pando, let me call them.” The problem is fifty other people are calling that company that day. They all look pretty undifferentiated. It’s a very spray and pray approach. What we do is two things. We upload the list of existing clients and identify all similar existing clients purely algorithmically.
Once we understand that we can build a recommender to send you new leads as they come into our system. Instead of spraying and praying you are getting relevant leads. Once you have the lead how do you nurture it? We give you signals that keep you in the loop on a company. The final link is about prioritizing your lead. We can tell you which ones have the most momentum. We are looking at non-traditional signals like sentiment on Twitter, crawling job boards and things like that to discover which ones have the most momentum.
SL: There are way more sales people than M&A folks and VCs. Is there more money in this than your core product?
AS: This is probably a larger opportunity. Venture is what people know us for, but if you add up all the VCs globally there are probably 2,000 of them. It’s a nice business, but it’s not going to be a $100 million revenue per year business. We had to find bigger markets for our data.
SL: When you say customers were asking about funding, do you mean because of potential conflicts given the venture world you analyze or because they wanted to make sure you had staying power?
AS: It was like, “hey, we like what you are building, we just want to make sure you are going to be around.” It was like receiving a stamp of approval that you have the wherewithal and are going to stay around.
SL: Why not go the VC route? They all read you. They get the value. Is there something about crunching about all these mega deals that makes you not want to go the VC route?
AS: We get a lot of interest right now, but if we go that route we wanted to raise for more of a growth equity round than survival. Philosophical, I really like the clarity of purpose of bootstrapping. We make good stuff for customers, and they pay us for it. If we keep them happy, they keep “funding” us. We serve one master. We like that… but we are not super religious about it.
Our fundamentals as a SAAS company are so good you could put us up against any venture backed company, and that’s because we’ve had to be scrappy. We can’t just throw money at the problem. We can’t spend $40,000 to get a customer. It helps us down the road because if we ever do raise a growth round, we’ll have leverage.
I left American Express to be my own boss. I’ve seen how VCs work. When things go well everything is good. When they don’t go well, that dynamic isn’t so great.
That said, there’s a lot merit if you think a downturn is coming to stockpiling some money away. A year ago I would have said, there was no chance we’d raise money anytime soon. I’m probably more open to it now. In a downturn there are a lot of things we can acquire and there will be really smart people floating around who can join the team. Refugees of a dream they were sold. I think there’s some merit to the argument of “Let’s get some money and be ready.” If it makes sense as a business, we’d do it.
SL: What will the NSF money mean for you guys?
AS: We did $4 million in revenue last year, and will do 100% growth this year at a minimum. We are profitable, but we reinvest it all back in the business.
But the big thing is because of how we’ve grown the company we have always been a little conservative. With the NSF funding we will be able to take a little bit of risk, especially on the product side. We’ve been building an algorithm on who is likely to be acquired next, and it’s a little bit out there. The core business is working so well, that money gives us some opportunity to explore some of our crazier ideas.
We are trying to build a massive business, and some of those crazier ideas may be the ones that propel us.
SL: If the market turns, how do you expect the editorial voice to change? If you are writing about carnage in the market, how do you expect the VCs who pay you to respond to that?
AS: The editorial tone we have is pretty new in the last eight months. We just try to call it as we see it. We get flack from some of our customers. A lot of them are VCs. They say, “Hey why are you guys so down on company XYZ,” but we also get a lot of positive feedback that we call BS sometimes.
I think it’s been good for the business. At the end of the day, it’s all marketing for us. We can’t take you to steak dinners the way Thompson does, so we have to get our brand out there somehow.
Having a viewpoint is better than being bland. We do worry sometimes about whether we are being too negative or too “rah rah.” The big thing for us is that we try to let the data talk as much as possible. There haven’t been a lot of IPOs this year. We didn’t cause that. We are just telling you, that’s probably problematic.
Public markets already have this massive ecosystem of people who look at data, but the private markets are so pundit driven, they are slightly unique in that regard.
There are a lot of things we are doing in the product to ensure we are not a dictionary you come to when you need a piece of information, but we’re pushing you information that is making you smarter all the time. When things aren’t as frothy as they are now, how do we ensure the business continues to thrive? Diversifying where the data can add more value makes sense. We have to have a product we can sell irrespective of market conditions.