Hunting Unicorns and Rapidly Becoming the Master of the Startup Universe

Anand Headshot - black and white

Anand Sanwal, co-founder and CEO, CB Insights

CB Insights is riding the Unicorn Boom, doubling its headcount since the beginning of the year, propelled by its unique database of companies and investors and everything there is to know about them. The frequency of “according to CB Insights” appearing in a wide range of media outlets has gone up dramatically this year. The fast-growing subscriber list for its engaging newsletter, bursting with visually-appealing data nuggets and topical analysis, is now at more than 100,000. Recently, it has supplied the New York Times with a list of the “50 Companies That May Be the Next Start-Up Unicorns.

This master of the startup universe got its start as Chubby Brain. “In our early days we were talking to an investment bank and they said they really liked our product but they will never buy something called Chubby Brain,” recalls Anand Sanwal, CB Insights’ co-founder and CEO. “At that moment we understood we needed to lose some of our edgy internet entrepreneur desire, given the market we were going after,” he adds.

The market they were going after consisted of all the people that need to understand the health of private companies. Doing M&As for American Express and managing, among other things, investments in companies trying to disrupt AmEx, Sanwal found out how difficult it was to use traditional information providers such as Dow Jones and Thomson (“their products, in one word, are terrible,” he says). To find out what’s going on with startups and other private companies, people were spending a lot of time manually gathering data by calling investors and VCs. Besides, the scope of this data collection was severely limited by the fact that private companies do their best to keep their financial performance private.

The answer to this need was in the explosion of publicly available data on the Web. “Better understanding private companies by using public information was the germ of the idea for CB Insights,” says Sanwal.

So a new digital business was born. CB Insights uses big data tools to automate the data collection, crawling about 100,000 sources daily, and big data algorithms to analyze the data about investors, companies, and industries. Most important, it identifies and tracks the publicly available signals that serve as good indicators of the health of private companies, e.g., hiring statistics from job boards, news and sentiment about the news, and information about new partners and customers. “I don’t think any of these [signals] is going to be independently a smoking gun,” says Sanwal. “We build this mosaic of a private company that’s instructive in understanding its health.” Doing it since 2009, CB Insights has amassed a large historical record that allows it to pinpoint which signals are strong (serving as valid indicators of a company’s success or failure) and which are weak.

Ironically for a startup that started up by providing recommendations to other entrepreneurs about the best funding sources for their startups, the founders of CB Insights did not seek angel or VC investment. Instead, they applied for a grant from the Small Business Innovation Research (SBIR) program of the National Science Foundation (NSF). The timing was right, as banks stopped lending to small businesses after the financial crisis. “Banks think about private companies as one monolithic entity,” says Sanwal, “and when times are tough they see all small businesses as a risk. Our thesis was—can we give lenders data that will help them make better decisions.”

They got an initial $150,000 grant to prove their thesis. When they did, they received a $500,000 grant, and when they started generating revenues, an additional $500,000, for a total of $1.15 million. “I don’t think we needed the NSF money from a survival perspective,” says Sanwal, “but it let us pursue some of the more moonshot ideas.”

In addition to this unusual funding mechanism, CB Insights is also quite unique in this Unicorn Boom era in that it has been revenue-funded from the beginning. “We’ve been very disciplined, always making more revenues than we spend every month,” says Sanwal. That’s a lesson he learned working for, one of the poster boys of the dot-com bubble which shut down after raising about $250 million. “I saw the perils of growth at all costs,” he says.

On the flip side, Sanwal probably also saw the benefits of free publicity, generated by the media’s obsession with dot-com startups. The SBIR grants helped in marketing the company as “a National Science Foundation-backed big data company” to potential customers and employees, but CB Insights needed more than the prestige of government-backed research to reach its targeted audience.

“We had zero marketing dollars,” says Sanwal, “and unlike Dow Jones or Thomson we could not take [prospects] to a dinner or a Yankees game.” Instead, their “weapon of choice” was their excellence at Excel. They started building a “content marketing engine,” providing potential customers—and the media—with a taste of what can be done with their data and analysis, via a newsletter and on their research blog. This marketing effort has showcased their data visualization skills, knack for knowing what will be quoted in the media, and an engaging combination of far-from-suppressed edgy  humor, “data geeks” passion, and maverick attitude (Sanwal signs all newsletters with “I love you” or, most recently, with “even if you never say it back, I still love you”).

The Unicorn Boom has provided a lot of opportunities for CB Insights to demonstrate their predictive analytics skills and get lots of free publicity, although hunting unicorns is a very insignificant part of the business. But, by popular demand, Sanwal has been happy to offer an opinion in the press and public speaking engagements regarding the perennial question—are we in a bubble? No, he says, ”the mechanism that’s going to force valuations down isn’t there as the public markets are closed to private companies right now. If companies start to IPO that have no business going public, then we will start to worry. A unicorn might fail and this will generate headlines but it will not cause any systemic risk to anybody. Right now, it’s only a private market euphoria, but no doubt it’s a little crazy.” (In this presentation, Sanwal explains in more detail why there is no bubble right now).

Sanwal says he has always wanted to be an entrepreneur: “I grew up in a family that was entrepreneurial. My father is a chemical engineer and started his own chemical manufacturing firm long time ago. I always wanted to be my own boss.”  Sanwal got at Wharton a chemical engineering degree and a finance/accounting degree, so I asked him what did his father think about him not pursuing an engineering career. “I think he knew he is a much better engineer than I’ll ever be and that the world is a much safer place because I’m not engineer,” Sanwal answered.

Like other successful entrepreneurs, Sanwal has a larger vision, going beyond the specific business opportunity he has spotted. Providing lenders, investors, and others a risk assessment tool akin to a FICO score for private companies, CB Insights makes private markets work faster, enabling faster decision-making. Correcting the inefficiencies he discovered in the market for information on private companies, leads to smoothing the inefficiencies in a variety of economic decisions, activities, and endeavors.

That vision was behind the development of a predictive analytics platform on top of high-quality database, serving as the foundation from which to launch a variety of applications or services targeted at specific audiences and needs.  In addition to a subscription-based access to its database, CB Insights has offered so far applications and tools for assessing the health of private companies and investors, mapping the links between investors and companies, tracking valuation and valuation multiples data, monitoring the health and growth potential of markets, and industry analytics.

About a month ago, the company launched CB Insights for Sales, “helping sales teams fill the top of their funnel with more prospects,” says Sanwal. It is targeted at companies selling “high-value products, $10,000 and above,” and corrects yet another inefficiency—the business-to-business selling process which is “hopelessly antiquated.”  Salespeople need not only new leads, but also to nurture their prospects. CB Insights’ database—which Sanwal argues is a competitive differentiator in the crowded sales analytics market—alerts them to news about the prospect which provide them with a reason to call. A company signing up for CB Insights for Sales uploads a list of their existing clients, which helps the application provide a similar list of companies to target. This is a big step for CB Insights towards customizing their database for the need of a specific customer.

Other recent and potential applications include recommending the likely acquirers of a private company, identifying the industries and markets that are hot, indicating for accounts receivables departments when they should tighten up credit terms for specific companies, and identifying for recruiters companies that are not doing too well so they can poach their talent. The long-term goal is to provide “a predictive analytics API that other people can pull into their own use cases and platforms,” says Sanwal.

CB Insights aims to be “the Bloomberg for private companies,” Sanwal tells his public audiences. But it’s more than that. “Our mantra internally is that probability trumps punditry,” he says. “We want to take on all of those people who make bold prognostications of where the world is going but they completely pull it out of [thin air]. We want to use data to inform the conversation about what’s next.”

Update: On November 9, 2015, CB Insights announced it has raised a $10 million Series A and provided details regarding its business metrics.

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