Are investors getting it wrong by placing open data startups in the same category as other tech businesses?
“What’s the point of open data? Open data doesn’t mean useful data and that’s the problem,” says Atanas Youroukov, CEO and co-founder of UniGraph, an open data business founded in Bratislava.
Youroukov is talking about funding. The perception of open data businesses is that they are not actually businesses at all, he says, and that of course makes it difficult to obtain investment. In short, it’s all about the money, regardless of how altruistic or open data-savvy a venture capitalist (VC) happens to be.
“Starting an open data business is really challenging because you have this concept of free and managing data and you want to share it with others, so it’s very difficult to find a business model that works as a small company,” adds Youroukov. But it’s not impossible.
UniGraph has been well funded, although Youroukov admits that much of its initial funding was received when UniGraph was a different business called Ingen.io. Since it was founded last year, the company has received €40,000 from incubator Wayra, €200,000 from Neulogy and €99,000 from ODINE.
Not being an open data business appears to have helped Youroukov to get things up and running and to ultimately build something to show second and third-round investors. If the company had started with its open data knowledge graph product UniGraph, would funding have been so forthcoming?
“With most VCs, it’s very difficult as there is always the question, ‘why are you going to giving it away for free?’ and ‘where is the business model?’ They are business not technical people; they look at numbers of clients, revenue and are not really interested in research and later stage development.”
This is not uncommon. Austrian urban cycling firm Bike Citizens has had similar experiences. According to founder and chief executive Daniel Kofler, after contacting a number of VCs and traditional investors the company went down a crowdfunding and grant funding route. As well as raising funds on Green Rocket, the company has also received cash from the European Space Agency (for a bike benefit scheme research project) and ODINE.
“It is rather hard to explain to a VC that our main target is to get more people on bikes and that earning money is only one aspect to reach this target,” says Kofler.
Kofler though believes that there is more to it than this, adding that not having a VC is actually beneficial, as the business is not saddled with the same pressures of a more traditional tech startup.
“Crowdfunding does not bear a big risk for the company – if we fail, we fail and there is nothing to pay back,” adds Kofler. “There is a long runtime for the investments (8-10 years), so paying out the investors is not bothering us right now.”
This sense of financial freedom can liberate a business from the traditional shackles of quick returns. Youroukov too understands the sentiment. So what should open data companies do?
“Getting funding without a prototype would be very hard,” says Kofler. “So build a prototype or proof of concept, make sure it is scalable and you have a rough draft of how your company or application would look in one, five and ten years and across different regions.”
Bike Citizens did this, with Kofler revealing the company “spent hours” talking to cities about visualising movement streams of cyclists and analysing the data to improve infrastructure. It was about educating cities of the value of open data and consequently using this experience to educate potential investors through its crowdfunding campaign.
“You need to be open minded and evolve,” says Youroukov, adding that he has started four other businesses, two of which were VC-funded and are still going strong. “You have to change and be bold sometimes, even if it doesn’t always make business sense.”
He is not convinced VCs are nervous of open data startups, just pragmatic. They want returns but if the idea is good enough and there is growth potential they will listen. He cites his relationship with Neulogy as a good example, although admits UniGraph has been lucky to find an individual (that now sits on its board) in the investment camp with previous experience of open data.
Not every open data startup may be so lucky. So what do you do? Both Youroukov and Kofler have taken different investment routes but both have also benefited from the investment fund from the European open data incubator ODINE.
Getting the idea up and running is essential for any startup but even more so for an open data one. The sector needs a winner, a golden child. Until that point it will always be difficult to convince VCs of the value of investing but there is always hope as Bike Citizens and UniGraph have shown.
As Youroukov says: “If it’s in your guts then just do it.”
(This story first appeared on The Guardian)