Capital Efficient Strategy for Generative AI Startups: RavenPack CEO Armando Gonzales (Part 4)

Sramana Mitra: What were average deal sizes in what you were selling?

Armando Gonzales: It’s a range. It can be anywhere between the $50,000 to several hundreds of thousand dollars.

Sramana Mitra: Recurring revenue?

Armando Gonzales: Correct.

Sramana Mitra: When you did this first deal and got all this experience of generating value for a customers and getting paid, what was the journey from the one customer to five customers, 10 customers, and 50 customers?

Armando Gonzales: That’s a very exciting phase. When you get that first customer, that is not an investor or a friend. There might be something there. We managed to get one very big customer. That was the beginning. It was one of the reference customers in the space.

Sramana Mitra: This was a European customer?

Armando Gonzales: American customer.

Sramana Mitra: Bank?

Armando Gonzales: The first customer is probably one of the biggest funds ever. They paid us a lot of money for it. As you start to learn, there are different sizes. This is how the pricing metrics evolve. From the one customer to the third customer, it takes longer than you’d expect. That’s when you start questioning whether what you’re doing is correct, whether that packaging is right, or whether there are tweaks you can do.

That journey is probably a little longer than you want it to be to the get to the fifth customer. Once we had five, that was the magic number. Getting five customers subscribing to our data product, that’s where it became clear that we had the pricing right and that we had the packaging right.

Even the way we delivered it: we had created an API that allowed us to push the content to those customers that wanted it really fast. It could pull the content through a different API. All of these details came together and it started to pick up.

Sramana Mitra: In that process of going from one to five, one was a very large fund. What about the other four? Were they also coming from large companies? Were they smaller companies?

Armando Gonzales: We continued to target similar profiles. Our target was quantitative hedge funds. They use systematic trading and algorithms. Our second customer was significantly smaller but considered a top customer. The third one was a bank. Then the fourth was another massive fund. The fifth was a big fund. All of them in the US.

Sramana Mitra: How many of these quantitative hedge funds are there? What is the TAM?

Armando Gonzales: I’ll define it in three phases. There are probably about 5,000 to 10,000 quantitative funds globally. There are funds that are hardcore quants. There are multi-manager funds that have portfolio managers but also discretionary or multi-asset class with different styles. There’s a portion of the fund that does quantitative investing.

When you go to the banks, there’s probably an additional 10,000 banks that may have some quantitative investing or quantitative trading function. On the risk management side, the addressable market is between 50,000 to 100,000 firms that do risk management with some quantitative components.

Sramana Mitra: Did you put in a US sales force to get into the market? It sounds like the traction was happening in the US.

Armando Gonzales: In the early days, we had partnered with Dow Jones. They were the firm that brought us to the US. It was their sales force that was pushing our product.

Sramana Mitra: What percentage of the revenues were they taking?

Armando Gonzales: It’s a revenue split, but the deal was mostly for them helping us sell and also earning money as part of their content deals. It was more of a specialized sale. We became specialists in that type of sale and took the reigns on the sales front and established a New York office. Sales kicked off out of New York.

Sramana Mitra: Dow Jones was selling the product under the RavenPack brand and not under Dow Jones?

Armando Gonzales: Yes, under RavenPack. We still have that product but it’s the Dow Jones edition.

Sramana Mitra: If you look at the timeline, at what point did you get the Dow Jones deal?

Armando Gonzales: This was roughly in 2008.

Sramana Mitra: You had five big customers at this point?

Armando Gonzales: One big customer.

Sramana Mitra: That one big customer got you the Dow Jones deal. That’s a very important milestone.

Armando Gonzales: That partnership had begun. This customer said they wanted it. That gave confidence that we could grow this. Twelve months in, we started getting sufficient traction in the US and more firms were wanting to try our data. Eventually, we were able to get more investments as a result of that. This is the business angel phase where you bring in a few angels to help you grow the business.

This segment is part 4 in the series : Capital Efficient Strategy for Generative AI Startups: RavenPack CEO Armando Gonzales
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