Often in venture capital and the software and tech community we see companies that can make some of us roll our eyes. For example, there is a new novelty app that gets tens of thousands of downloads in its first week, but has little lasting engagement. It then quietly disappears after a few years to the next oddity or after it burns through the funding. The results are: Investors are jaded, entrepreneurs hope to survive, engineers move to the next startup, and critics wonder: what real value does technology bring?
As investors in enterprise software companies, we pursue opportunities where we see substance. We avoid socially-based applications because the products often don’t offer us better or more meaningful connections. If we see payment processing and SaaS, they must have differentiators that push them above their competitors. We are exposed to and pass on hundreds of opportunities like these every year, and the partners at SG VC seek game changing and lasting solutions that move industries forward.
When investing, we consider all aspects of a company including the team, co-investors, strength of the intellectual property, and the addressable market. Fundamentally, we want to see entrepreneurs, teams, and investors get past the buzzwords and cliched phrases about technology, big-data, and innovation and actualize real solutions.
To illustrate my point I present two case studies on successful SG VC portfolio companies that are bringing innovation and substance. The proof is always in the execution and the performance of the idea.
OpenGov1
We are passionate about Business to Business software, and recently have seen the opportunities in Business to Government. Certainly government municipalities are the most difficult landscapes for adopting innovation, efficiency, and transparency.
How can software and technology help this industry?
Imagine this scenario: You live in a smaller California city, and there have been some recent scandals of administrators retiring early, and making more in pension than their previous salary. At an open city hall meeting, you bring up the elephant in the room: “What are we spending on educational administrators’ pensions this year and next? Can our current revenues from finite sources support this growth? How do we compare to our sister city in the next county?”
In most cases, anyone in that room is 4-5 degrees removed from this important information (often required by law to be available and accessible to the public). In addition, this is a non-linear problem; the answer is not an input/output and a single number. Not only will you need data on your city, comparable data, projected models (future budget), but also macro decisions from elected officials. The information could be in vintage software (often 20-30+ years old), scattered in spreadsheets, or somewhere in a 200+ page budget report. This is data that involves millions of taxpayers’ dollars, and impacts the lives of everyone in your city. Why is it so hard to access and analyze?
Now look at this real life alternative: Los Angeles Mayor Eric Garcetti is elected for 2014 and puts together his Open Budget Portal.2 “My new budget website gives residents a better way to see how their tax dollars are being collected and spent, making Los Angeles more transparent and accountable,” Garcetti told the public in March. OpenGov is powering his online budgeting trends for LA’s $22 billion in spending. Now anyone in Los Angeles (or elsewhere with the Internet) can see this information at any time and hold his/her elected officials accountable.
OpenGov is a subscription-based software, and is flexible in its pricing and features for any U.S. municipality, from the City of Bell3 to the California State Lands Commission. It is a simple process to upload past years’ financials, and it’s easy for a user to upload new data. City officials can analyze trends, set benchmarks, pinpoint waste, project future budgets, encourage constituent discussion, but also compare themselves to other municipalities. As more and more US municipalities sign up, they create an interconnected effect that will continue to encourage efficiency and transparent policies within the network. Through OpenGov, we have accessible and actionable data, and everyone involved can work together toward solutions and efficiency.
This is a bold and worthy endeavor, and it is an example of technology producing real substance. On top of that, it is a great business model for a growing company and one of the main reasons SG VC decided to invest in OpenGov.
Addepar4
Wealth management firms spend well over $10 billion annually to separately create and maintain individual financial data aggregation and infrastructure, internal/external reporting, and analysis. There are well over 6,000 custodians in the U.S. with a few thousand data points: multi-currencies, tax codes, language considerations, and specific RIA products. These are each custom data points that require a carefully built ontology; there are currently no streamlined APIs or single platforms that help connect all of these sources of financial data. Data is still manually entered into the firm’s dated systems opening up to user error, fraud, and inhibiting sophisticated analysis.
On the client side of the industry, current clients of these firms receive printed mailers or PDFs from their managers that contain already dated information (often quarterly). If the reports are ad hoc, they are still days or hours old at best. There is no real-time answer to the question: ‘What is my current net worth right now?’ There is no opportunity for an individual investor to ask a nonlinear question like, “How did my individual products in my bond portfolio perform to the Yen between Q2 2011 and Q3 2013? How does that look to the S&P?” Coming from a private banking and wealth management background, I’m all too familiar with this problem.
To the right entrepreneurs, this is a great opportunity. An ambitious and strong enough company can set out to replace old software and inefficient infrastructure that have up until now only solved linear problems.
Enter Addepar, a cloud-based platform used by wealth managers to connect a client’s financial data and entire financial profile into a single, real-time portal. The platform connects clearinghouses and complex global sources of data into a single, cloud-based repository with a back admin for managers, and front-facing end-user portal for the client.
The Value Proposition: Addepar gives fund managers access to macro and micro trends in their client portfolios, enabling them to model greater market trends for their AUMs, and deliver immediate and relevant reports to their clients. The clients now have a real-time, aggregation of their wealth that they can customize through their Addepar web portal. On a third level, the entire industry raises the bar on the quality, transparency, and greater accountability of the products the wealth managers offer. When there is a network effect, the more information and financial data that is aggregated on the Addepar platform, then the more opportunities are created to discover insights into global financial trends.
In addition to its team, co-investors, IP and ambitious goals, SG VC invested in Addepar because network and platform companies entering a large addressable market have longer and lasting value. Addepar is not just seeking value add with a single product with features, but the goal is to replace or significantly improve the existing workflow of wealth managers. It’s been stated before: to be a substantial company, you have to bring a solution that is a magnitude better than the current model. Clients (RIAs, fund managers in this case) desperately need a new model; Addepar is delivering.
For more information, visit sg-vc.com or email info@sg-vc.com.
1opengov.com
2losangeles.opengov.com/transparency
3foxnews.com/politics/2014/04/16/ex-city-leader-bell-california-gets-12-years-in-prison-for-corruption-scandal/
4addepar.com
