If you’re building a startup that collects unique data, hedge funds want to talk to you... by yesterday.
If you work at a medium to large hedge fund that doesn't have a data team, rest assured that you'll be seeing some kind of data initiative in the next 12-18 months because everyone and their mother’s boss is looking for new sources of edge/alpha on the buyside.
Here are examples of company archetypes for data deals we've been seeing and some metrics around revenues those companies are commanding for data:
- Consumer spending data - Yodlee was recently profiled in WSJ and has subscription fees of $2M per fund for consumer spending habits. Yodlee was acquired for $800M by Envestnet*, it’s unclear whether or not they’ll still be selling this data to hedgies after the acquisition is complete.
- App engagement data - AppAnnie has grown to a team of 25 salespeople selling app engagement data for public companies to Finance customers. Price varies based on customer AUM.
- Advertisement spending data - MediaRadar tracks ad spend on real-time basis. Sells ad-spending data feed to select hedge funds for annual 6-figure contracts
- Agriculture data - Descartes Labs measures photosynthesis using proprietary imaging technology developed at Los Alamos. Selling feeds on corn production and other crops to commodities traders and other clients at 6-figure annual subscriptions.
- POS data - a variety of Point of Sale technology providers anonymize SKU-level sales data and sell to hedge funds, mostly through third party data brokers but some are starting to go direct to the buyside.
- Social data - Companies like TickerTags (a ValueStream portfolio company) are extracting social mentions of brands and connecting them to the underlying public companies. There are also a plethora of social sentiment startups monitoring mentions of stocks in social feeds. Twitter itself has become a data company by selling their "decahose" (10% of all tweets) and full "firehose" of tweets for 6, 7 and even 8 figure contracts depending on the customer and amount of data requested.
While there are examples of companies building sales teams themselves, most startups are resource-strapped and aren’t able to do it themselves, e.g. packaging the data, marketing data properly to a buyside client, building signals, etc. We've already seen instances of startups that wanted to work with brokers, then reversed course because they decided they could do it themselves.
Most of those dudes ended up spinning their wheels and burning cash after realizing they had no idea how to speak the lingua franca of the buyside.
The reality is that most non-quantitative research analysts don’t possess the skills to analyze these raw data outputs, and that has prompted many fundamental hedge funds to rethink their hiring decisions. At larger funds we’ve even seen new data mining teams being built altogether.
Basically, startups with proprietary data are here to stay, and your MD wants you to make friends with the techies. Business schools will come to realize that the data age is drastically reshaping analyst job descriptions, and slowly but surely, change their curricula to reflect the new normal.
See ya in Python class, LAX bros.
*Yodlee was acquired by Envestnet. That was misstated in an earlier version of this post.
Greg Neufeld is the Founding Partner of ValueStream, a New York venture capital firm and accelerator that invests in enterprise FinTech, data and analytics software startups.