What We’re Looking to Invest in: “Unsexy Tech” businesses
At Cowboy Ventures, one of our core investment themes for the coming years is what we refer to as “unsexy tech.” In this blogpost, we’ll attempt to unpack what this means and lay out examples of the types companies we are excited to meet.
We often read in the press about new tech companies and innovations. Typically though, the innovations that get attention are ones that consumers can relate to or can participate in such as social networking or scooters. What we don’t read about as much in the tech press is how many critical business processes within large industries still use old software or no software and how technology is making some businesses much more efficient and effective. At Cowboy, we’re looking for companies delivering innovations that are hidden in the innards of enterprises, usually removed from the public’s view — what we call “unsexy tech”.
One example is our investment in Vic.ai. Vic.ai is bringing artificial intelligence to help empower accountants work more effectively and efficiently. Vic’s software focuses on automating simple and repetitive tasks that are currently done by human beings. Their first product focuses on accounts payable. Without Vic a finance person must read every invoice a company receives and then enter the data set forth in that invoice into the appropriate “account.” Vic uses computer vision to read an invoice and then, through a system powered by machine learning, the software can properly assign that invoice. Entering data from invoices into an accounting system isn’t as wondrous an application of artificial intelligence as the human companion envisioned by Her or the murderous robots of WestWorld. We believe, however, that this use case is a great example of the ways in which learning loop software can be trained to do tedious tasks that people do today, freeing people up to do more interesting and creative work.
Accounts payable is just the beginning for Vic.ai. Their roadmap envisions many of the mundane tasks that accountants and bookkeepers currently perform being done by AI, leaving accountants and financial specialists free to apply judgment and help with systems and controls and other higher value add activities. It is worthwhile to note that the spreadsheet was widely considered to be the first “killer application” for home computers, and that its adoption was heavily driven by accountants.
Another example of an “unsexy tech” company is LumaTax, which automates the payment of state and local taxes and the filing of returns. As more and more of a consumer’s wallet moves online, the filing and paying of state and local sales and use tax has become a real point of attention. Governments that have seen local tax revenues decline have become more aggressive at collecting taxes from online merchants and a recent Supreme Court decision have greatly expanded liability for sellers. Enter LumaTax, a company that automagically calculates the money that merchants need to pay, pays those taxes and make all the necessary filings for for a merchant. LumaTax will also use artificial intelligence to help spot which transactions are subject to or exempt from the wide assortment of sales and use taxes.
Our investment in Fullcast.io is third example of “unsexy tech” in another area — sales operations. Sales ops is a function that involves building systems and processes to assist in sales team productivity. It’s a function that has historically grown in headcount and manual processes as a sales team grows. Fullcast’s solution automates sales operations by uniting the sales planning and running of day to day sales processes.. This unification enables dynamic changes so that, for example, when an employee leaves, the system automatically reassigns her accounts to other sellers without any additional intervention.
Sales operations is one of the many emergent vertical enterprise “operations” functions, which hope to automate and systemize areas that have historically been managed more manually. We believe there is a ton of opportunity for ‘unsexy’ but large, successful technology-native businesses to be built in an array of additional operational areas such as legal, compliance, planning, HR, supply chain and logistics.
In looking at these investment areas, one might be tempted to think that they are niche markets. There is quite a bit of evidence to the contrary. Avalara, the current leader in sales tax compliance has a market cap of over $4 billion. The Sage Group, a large enterprise accounting software company has a market cap of over $8 billion while Intuit’s market cap exceeds $50 billion. While accounting and tax may not receive the media coverage of the latest viral app, it’s an example of an area in which big businesses can be built.
Unsexy tech is really an extension of Marc Andreessen’s observation about “software eating the world.” Hidden in the murky depths of enterprises are opportunities to leverage machine learning and other nascent technologies to perform tasks orders of magnitude more rapidly and with far greater accuracy. In some cases these may be orchestration layers for enterprise tasks that are currently managed manually or in siloed systems. These developments create real opportunities for startups. If you’re building something like this or know someone who is, we’d like to meet you.
If you have any comments or suggestions about this post, please let me know. I keep comments off to ward off trolls, but I’d love to hear your feedback.
