Thoughts about investors and startups database business

Dealroom announced that it raised €2.75 million at a 10 mil. valuation.

Dealroom is the underdog trying to grab a piece of the market and build a comparable business with Crunchbase and Pitchbook, the standard tools for most of the venture investors.

For context, Crunchbase raised $30M series C last year and almost $60M in total since being spun off from AOL and Pitchbook was acquired for $225M by Morningstar three years ago.

The market for this kind of business is quite crowded and fragmented, with a bunch others having raised VC, including Owler (almost $30M) or Tracxn (about $15M). CB Insights raised only $10M in 2015, after having bootstrapped the company for about 5 years.

Add in the mix other vertical and horizontal service providers trying to grab market share with similar products - accounting cos such as KPMG or PWC or big guns such as Dow Jones or Bloomberg.

It is a delicate business, as data needs to be accurate, not easy particularly when you have a bottom-up approach (i.e. user-generated or scrapped data). I am aware of a few product methodologies, combining tech and manual curation which can be done in multiple ways. It is a thorough and skill-based process, if done right. On top of it, the tech stack and UX are equally important for crafting a good overall product.

I find both CB Insights and Dealroom to be more decent products, with better fundamentals, as opposed to, for example, Pitchbook and Crunchbase, which casually scrap other databases via their India-based offices. A personal note for Crunchbase, whose front end (website and mobile app) is also quite bad.

However, business-wise and in the great scheme of things, these details don’t really matter as long as you have an average product. The GTM and sales approach are much more important, and can make or break a company.

Otoh, Dealroom is the only one with a better European value proposition because, well, it is in Europe and because all others started from US and focused on US. At the end of last year, Pitchbook announced that it opened an UK office though, obviously hungry for more biz - their sales ppl are quite aggressive afaik.

The industry is very competitive and a tad boring, not really touched by what you can do with data and tech these days. That is actually the upside of it.

All companies have the same model - on-demand data and API access and ocasional research to build up rep and sales support. It is rather a zero sum game with lower switching costs.

Obviously they compete the same way, on price, which will likely lead to a bit of market clean up and consolidation. A special reminder for newbies about Mattermark which pissed away about $20M and failed spectacularly.

As mentioned last week though, Europe has a lil’ extra money which creates demand for better data and Dealroom has a little local edge compared to the Americans. So far.

Does this edge alone justify the investment bet? What is the end game and what makes this market interesting? Is Europe alone a good enough place for creating 3-5X value increase for a 10 million asset today in the following 3-5 years? How much is growth capturing and how much is share from the others?

5-10k potential clients (let’s just say) seem a reasonable number when doing Excel modeling - but… the next period will presumably see a market correction as it kept going up for 10-12 years now. Competition is fierce, sales cycles are long and investors are very difficult customers.

Will Dealroom go after business overseas? The sales process is way easier with Americans tbh, and Dealroom certainly started adding non-European deals in their dbs. It’d be a bold tactic but probably they will not, focus is key and not sure 3 mil is enough muscle for building a solid b2b sales force on both sides of the pond while strengthening the product.

As always, the better strategy makes the better players and there are a few cards to be played in this game. I am certainly curious about how the following 2-3 years will unfold.

Disclosure: I built a similar biz which covers the Nordics and, lately, Spain.

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