New York – As more research providers emerge to analyze the public markets (there are now over 3,500 research providers in our database), one gap in the market are research providers for the private markets. David Teten, founder of the expert network Evalueserve Circle of Experts (formerly Nitron Circle of Experts), is moving into this space. His new firm, AlphaCub, will provide origination tools and other analytics to private equity firms. Teten’s exit from expert networks was well timed in retrospect, and his new focus on private equity looks opportune.
Teten is a serial entrepreneur and former Bear Stearns investment banker, who previously started three ventures, selling two to strategic investors. Circle of Experts was sold to global research and analytics firm Evaluserve in February 2007. He and his partner, Scott Lichtman, spent two years with Evalueserve after the acquisition. Prior to founding Circle of Experts, he founded an executive recruiting business, Teten Recruiting, which he ultimately sold to Accolo, a recruiting process outsourcing company. His first venture was GoldNames, an investment bank specializing in monetizing internet domain names, during the height of the tech bubble.
Teten’s latest venture is AlphaCub which focuses on using social media and other non-traditional data sources to identify companies which are receptive to outside investment. The company is developing tools to automate the identification of ‘deal signals’ indicating a company has a higher propensity to be receptive to a private equity investor. For example, if the CEO is reaching retirement age, or the company has been held by a PE fund for over 6 years, the company is more likely to be in play.
From a job ad AlphaCub posted for a VP Engineering: “Our first product is DealSignals.com, an automated research and analysis engine focused on private companies, leveraging our experience in sourcing new investments for private equity investors. Our technology is somewhat parallel to that developed by such firms as Alacra, Bloomberg, Capital IQ, Connotate, Dun & Bradstreet, FirstRain, InfoNgen, SkyGrid, and ThomsonReuters.” According to Teten, the firm plans to draw on input from firms such as Dun & Bradstreet and Capital IQ. The job description also suggests that the startup will originate data through web scraping technology, and mentions plans to expand in Asia from early on.
Teten and his colleague Chris Farmer (formerly of Bessemer Venture Partners) recently completed a study of origination best practices at private equity and venture capital firms, based on interviews with over 150 private equity and venture capital investors. He has published a preview of his findings in the June Harvard Business Review, and will publish detailed findings in some of the major investor journals (Download preview here.)
For institutional investors in public markets, judgment is the primary challenge, not origination. Alpha is created by choosing which investments to make. (An exception would be IPOs, where origination is typically a function of commission flow to the underwriters.) For private equity, origination can be an important source of alpha, and successful PE firms often have dedicated staff originating deals.
We spoke with Teten about his views on the expert network industry. He sees the biggest challenge in the expert network industry as a lack of differentiation among providers vs. industry leader Gerson Lehrman Group. In addition, most of the smaller vendors have inadequate distribution, similar to most providers in the alternative research space. Although different expert network providers have developed niche expertise in specific sectors or geographies, he observes that an expert network has to identify a substantive strategic differentiation in order to resist the strong pricing pressure that the industry is facing. He was surprised that new expert networks which appear undifferentiated are still emerging.
The timing of David Teten’s exit from the expert network industry was very good, in retrospect. He sold his business close to the peak, which was in early 2008 as the financial crisis heated up. His new venture focuses on a far less crowded segment of the research industry, and for that reason has good prospects for success.