Increased PE Investment Activity Signals Optimism for Data Companies

It's not unusual to see a flurry of mergers and acquisition activity around year-end as firms hustle to clear their books and close deals. But it's less common to see a flurry of investment announcements in a single week in midsummer, which is what we witnessed recently in the market data world.

First, crowd-sourced estimates startup Estimize announced a $3.6 million investment from London-based publisher Euromoney Institutional Investor, as part of an overall $8 million series B funding round. Euromoney, which received a 10 percent stake in Estimize for its investment, already owns a growing suite of data assets in addition to news and commentary businesses, such as FOW TradeData, BCA Research ─ with which Estimize will work to share content and clients, and collaborate on developing joint services ─ and EMIS (formerly ISI Emerging Markets).

Meanwhile, startup consensus credit ratings provider Credit Benchmark announced a $20 million funding round led by new investor Balderton Capital and existing investor Index Ventures to continue its content acquisition and contributor onboarding initiatives, and strengthen its technology platform and data quality functions.

However, Credit Benchmark isn't disclosing how much equity its investors received in return for their cash.

Cagey
Also being somewhat cagey about a new investment is MDX Technology, which recently completed its first-ever funding round since setting up the company five years ago, raising an unspecified "seven-figure" sum from family, friends, professional investors and clients to accelerate growth and allow the vendor to put dedicated resources on the ground to respond to business opportunities in the US and Asia, rather than relying on a network of partners.

And while it's unusual to see such a flurry of deals in such close proximity, there's every reason to suspect that the activity will continue as startup and early stage vendors look to fund rapid expansion to address new opportunities with a quick fix of third-party investment, rather than waiting until existing assets and revenues are sufficient to fund such a move.

There's every reason to suspect that the private equity activity will continue as startup and early stage vendors look to fund rapid expansions to address new opportunities.

Fast Injection
The advantage is that external funding provides a fast injection of cash, allowing you to move quickly to exploit opportunities that may have disappeared ─ or been taken advantage of by competitors ─ by the time organic growth would allow you to address them.

The disadvantage is that for each dollar in private equity money, you're ceding control of your company, little by little, to people who may expect a larger return in the short term than you envisage, and who may not be in it for the long haul. That's why it's so important to find backers who are on the same page. For example, Estimize founder and chief executive Leigh Drogen describes Euromoney as having the same philosophy and outlook. "They understand that the future of content is data," he says.

Plus, it's not just about the money ─ there's also a big people aspect to this, since those investors often bring with them subject matter experts with plenty of skills that can benefit startups with limited management experience.

Pony Up
Arguably, the willingness of investors to pony up money for market data initiatives reflects what research firm Burton-Taylor International Consulting says is a marked increase in optimism this year and projected for 2016. According to Burton-Taylor's latest market share survey, data consumers and providers alike anticipate increases in data spend, following a 4 percent increase in industry value to $26.5 billion in 2014.

Perhaps these investors share that sentiment, and are looking to capitalize on that optimism ─ and no doubt the demand it will create for data from the companies in which they've just taken a stake.