Differentiation key for BI startups when attracting investors

BI startups, like all companies when they're getting started, need money to get off the ground.

BI startups need to show that they have a good idea, and are not simply repackaging analytics software platforms already on the market. They need to show that they can build a strong product, and that their founders have the expertise to build and sustain something commercially viable.

And with that, they need to attract investors to fund the company in the years it takes between the time an idea forms and a company becomes financially solvent.

Vanessa Larco is a partner at New Enterprise Associates, a venture capital firm with over $20 billion assets under management. NEA was an early investor in companies such as Tableau and Salesforce when they were tech startups, and, among many other types of companies, continues to invest in BI startups. Recently, NEA was part of an investment round in Sisu, a startup BI vendor founded in 2018 and based in San Francisco.

Vanessa Larco

Larco, meanwhile, has an extensive background in computer science, and before joining NEA was director of product management at Box. Prior to that, she worked in the gaming industry, leading the speech recognition experience team at Xbox Kinnect v1. She leads deals investing in tech companies, including BI startups, and participates in others led by colleagues.

Larco recently took time to answer questions about investing in BI startups.

In Part I of a two-part Q&A, she discusses what she looks for in a BI startup and what she loved about Sisu. In Part II, Larco talks about the process of investing in BI startups, including the warning signs that arise that may keep her from investing.

When you're considering investing in BI startups, what are some of the characteristics you want to see in a vendor that tell you it might make a good investment?

Vanessa Larco: I think every partner has their own journey when trying to figure out where to invest. For me, I draw a lot on my experience having been a product manager. When I think about what the challenges were that I had or that my team had in building, launching, supporting, maintaining products and then when you see a solution -- whether it's in data or any other vertical -- that makes sense and you can say, 'Wow, if this had existed when I was doing things it would have made my life easier, my team's life easier,' it's something that resonates right off the bat.

I think every partner has their own journey when trying to figure out where to invest. For me, I draw a lot on my experience having been a product manager.

You then validate it against actual teams that are still building things and ask them if this would be helpful, and that validates the real need for it.

In the case of Sisu, what stood out about them and led NEA to decide it was a company worth betting on?

Larco: Every process, as much as we like it to be standardized, turns out to be its own unique snowflake, and in the case of Sisu, Pete Sonsini led the deal team and I joined the deal team, meaning I helped him evaluate the opportunity and spent time with the team. I am super excited about Sisu. I ran it by some of my portfolio companies, particularly the ones who [complain that] board meetings take forever because they show a bunch of data and people ask, 'Well why did this happen, why did that happen?' And to get those answers it takes at least week. So when I saw the Sisu value proposition I wondered if this will solve that problem.

Even back when I led a product team in the past and we would present to CEOs, we'd show numbers going up and down and they'd ask, 'Well, why did that happen?' We'd have to get back to them. It's just super painful when you know they're going to ask you why, and that is what takes forever. Sometimes you spend all that time trying to figure out why, and then nothing comes of it, so when I saw the Sisu value proposition I thought that if this actually works it could be game changing.

What happened after you saw Sisu's value proposition?

Larco: I took it to a good friend at a portfolio company to kick the tires, and they were like, 'Yes. Yes, this awesome. Thank you so much.' They said their data person would be so happy they wouldn't be bogged down answering some very simple questions and doing the manual work to answer why, so from that perspective it was super exciting.

Once NEA invests in BI startups, how much influence does it want going forward -- does it seek a spot on the board of directors, leave the company alone or something in between?

Larco: Each case in venture is different. It's not a high-volume type of industry -- we're not doing hundreds of deals a year -- so each deal is very unique and each financing round is unique. But in general, the earlier in the company's lifecycle you invest in, the founders want you on their board because they want the attention and support, the advice, the feedback, the connection. VCs, in most cases, have been on many boards and seen a lot of stories play out, and you have a lot of connections to potential customers, and so to be able to understand what a company's needs are as they change is really valuable. Most of the time, both parties want a seat on the board.

But if it's super, super early and someone else leads the financing round and you're just participating, someone else takes the board seat. Or if it's the late stages then the board is already pretty filled out and it has less unknowns than in the early formation years, in those cases you may not take a seat on the board. If an investor is acquiring a significant amount of equity and you're between 15 and 30 percent, they will typically take a board seat. Anything less than that, it may not make a ton of sense to take a board seat -- there's a limit to how many board seats we can take.

Besides Sisu, who are some startups in the BI/analytics space NEA has recently invested in?

Larco: My colleague Julia Schottenstein led the investment in Metabase, which is in the data space in the Open-Source project world. I was on the deal team and attended the board meetings for a company called OmniSci. The real value proposition there is they do some really cool geospatial [analysis], and it's lightning fast. If you need data and need to visualize it across any type of map, I haven't seen anything like it. From my gaming and advertising days that would have been a massive help. It's a category that historically if you were investors in Tableau and other data companies that have done really well -- it's a category NEA has performed really well in in the past. It's a massive category for IT spends, so it's an area we actively invest in year over year.