Industry Classification: Solved

Relativity6’s AI Solution to Widespread Misclassifications

At Cortado, we create a long-form post about each of our investments to educate our stakeholders on the technologies we’re investing in and provide insight into our investment theses. This post covers one of Cortado’s newer investments, Relativity6, and is the first of many that will be posted here moving forward. Thanks to Cortado’s Research Fellow, Nathan Friels, for his contribution to this post.

For starters, let’s get the acronym out of the way: NAICS stands for North American Industry Classification System. NAICS is a classification of business establishments by type of economic activity (i.e. agriculture, construction, manufacturing) and is used by Canada, Mexico, and the U.S.

My first exposure to NAICS codes was in college. When analyzing companies or writing market reports for business classes, we would regularly use NAICS codes to find research related to the performance of a specific industry segment. These industry reports are a great example of the intended use case of NAICS — it’s the standard used by Federal statistical agencies for collecting analyzing, and publishing statistical data related to the U.S. business economy.

But Why Do We Care? The Challenge of Industry Classification

NAICS codes are vital to areas such as commercial underwriting, lending, fraud detection, payment processing, customer segmentation, and more, and are a regular part of daily activity in many of these industries.

But businesses are often nuanced, and the company name doesn’t always tell you what it does. For example, is “Cortado Ventures” an investment firm or an ambitious third wave coffee house? Upon further inspection it can be hard to narrow down the exact revenue producing activity and fit it into a broad category. Especially since the most intuitive answer may not always be the correct one:

- 621111 — “Offices of Physicians” — includes all doctors, but not mental health specialists.

- 813990 — “Other Similar Organizations (except Business, Professional, Labor, and Political Organizations)” — is especially vague…go ahead and try to guess what fits accurately in that code… (Home Owners Associations are one)

In addition to this, many small or new businesses change and adapt to better fit the needs of their customers, so their specific economic activity may adapt over time, which makes finding their classification even more difficult. It’s especially difficult to accurately identify companies of one hundred employees or less (which according to the US census bureau, is about 98.1% of companies in the country), so the necessity for more accurate identification is pretty apparent.

Enter Relativity6 — https://www.relativity6.com/

Relativity6’s AI software scours the web for publicly available data about a company, including websites, social media pages, news articles, and more, and then uses their trained models to return a predicted 6-digit NAICS code with a confidence score, as well as any relevant keywords about the business. Their AI is 70–90% accurate in determining NAICS codes, compared to roughly 50% accuracy by humans, and the AI will only get better with time. In addition to improvements in accuracy, the Relativity6 solution also enables significant time savings for the humans who would be doing the lookups. For example, if a commercial underwriter does 10 loans a day for which they need a NAICS code, and it takes them 10 minutes of Google searching to figure each one out, that’s more than 20% of their 8-hr day spent doing industry classification. There’s a significant opportunity for value creation here, and R6 has already seen a tremendous response from the market.

As an early-stage company, R6 already has consistent and rapidly growing revenue with a fully launched product. The company makes revenue every time their API is pinged (or essentially for every NAICS code lookup) and many of their larger customers do hundreds of these lookups per day. The future outlook is tremendous as well, as the vast majority of the market still does NAICS lookups entirely manually. As more of the market becomes aware of this solution, Relativity6’s success will continue to boom. The company has a few direct competitors, but consistently outperformed them on reliability and accuracy in customer pilots.

Relativity6 and Cortado

Cortado couldn’t be more thrilled to invest in Relativity 6 and its outstanding Founder, Alan Ringvald. We first met Alan back in 2020, early in the life of Relativity 6. Alan knew that many large insurance companies exist in the middle of the country, and he sought out accelerator programs in the region that would be able to offer connections to potential insurance customers. Alan was accepted into Oklahoma City’s renowned StitchCrew Accelerator, where StitchCrew founders Erika and Chris Lucas helped connect him to investors (including us), fintech/insurtech advisors, and insurance companies who became his earliest customers.

After getting to know Alan and tracking his progress for over a year, when the time came for Relativity6’s Series A raise we were ecstatic to jump on board and join the investment round. Relativity6 is a perfect fit for Cortado as a B2B fintech company with a significant number of customers in the midcontinent market and an outstanding team. Founder Alan Ringvald is an MIT graduate with a strong technical background, and is a multi-time entrepreneur.

The future is bright for Relativity6 and for the many individuals out there who discover the value it can bring to their daily lives. Time is money, and it’s easy to draw the line to real value creation for businesses as their employees save hours of time spent looking up NAICS codes.

Is your organization looking for a better solution for NAICS code lookups? Email alan@relativity6.com to set up a demo or pilot of their solution.