Tuesday, July 31, 2012

Why I invested in the Consensus Point

Why I invested in the Consensus Point: Using Prediction Markets to Disrupt Market Research

It is an angel investing commonplace that your investing lightbulb goes on when confronted with a innovative and compelling idea and business model presented by a CEO/founder who seems to have the passion, commitment and smarts to turn that idea into reality. Indeed at its core, the investment case for an early stage business in my view revolves around those two crucial components - the idea, the entrepreneur.

One of my first angel investments, Consensus Point, is premised on an innovative indeed disruptive approach. Why not make use of the technology of “prediction markets” to provide the market intelligence community, corporations and others with a faster, quicker and as good if not better answer to questions they frequently ask about concept testing and new products: which of these five features will consumers most value? will my customers really see this new offering as superior? and so on. (Of course this is what makes the $6.7 Bn US market research industry hum.) But what if you found a company commercializing that idea where the “founder of prediction markets” was not just a source of inspiration for the business model, but was actually an equity holder himself and active in fronting for the company with potential clients, at conferences etc? Now that would be a doubly attractive proposition and that, in the shape of Chief Scientist Professor Robin Hanson, is what we (I worked alongside experienced Golden Seeds member Sandy Kresch on this deal benefiting greatly from her guidance) found at Consensus Point.

That said Consensus Point is not a “clean” case of  a “great idea into action” start up. Rather it falls into the messier category of businesses where the original founders struggled to execute on their vision, did not work well with initial external shareholders and where it would have been easy for the project to derail and fail. However this trial by fire seems to have produced a positive outcome, albeit one that meant the need for a business model pivot and new investors getting comfortable with lack of clarity on the financial outlook. Specifically an initial group of six angels and two institutions made a commitment to the company with one of the angels being installed as CEO with a mission to “make it work”. This entailed rethinking the go to market strategy in 2011. This shifted from a direct sales to a reseller approach towards year end while bringing in significant new capital to allow product development to scale while revenues from the prior direct sales model eroded. Still, Sandy and I were encouraged when reseller customer due diligence undertaken by another colleague Clover Bergmann returned very positive reports on the approach, the team and the opportunity. Indeed the company has started to attract favorable media commentary, for example a piece in UK based research-live.com, which describes the company’s Huunu prediction market platform.

We were introduced to Consensus Point at Golden Seeds last fall when the company was in process of changing its go to market strategy.  At that time we were concerned about a high cost sales approach and also had questions about how the prediction market actually worked.  After an impressive demonstration of the product, we suggested that a test of how the Consensus Point approach measured responses to concepts compared with the traditional methodologies used by consumer products companies would be required to support investor interest.  Consensus Point responded favorably and implemented a successful test with one of their research partners.  In the same time frame, they used creative approaches to secure a proportion of their Series A funding through Tennessee state programs to create local jobs.

We were fortunate to be asked to consider completing the company’s Series A round at a time when the marketing pivot was well underway, prior capital commitments provided a healthy runway and the new CEO Linda Rebrovick had already made several key hires. Given the Consensus point B2B model we felt it was a great sign that CEO had a resume (including CMO for Bearing Point, VP Dell Healthcare Sales) and the stature to go with it that would make her a convincing salesperson not just to us, but more importantly to potential customers.

The Company is receiving positive input about their product and new doors are opening on a continuing basis.  I continue to have confidence in the initial call we made when Sandy and I sat down to discuss investing (or not) in this business. Namely that the combination of an innovative idea and a strong CEO bode well for Consensus Point’s future success. We shall see!

Twitter handles:
Consensus Point - @consensuspoint 
CEO Linda Rebrovick - @lindarebrovick