Generally, when I interview people, I find myself having to ask the first few questions to get the conversation going. Not so when I interviewed Erik Levy, Senior VP of Strategy and M&A at DMG :: information (DMGI). When I got Erik on the phone I found myself the one being interviewed. He was interested about the purpose and distribution of my proposed article, mulling over every answer with the calculated pauses of someone that has no problem saying “no”.
This caught me a little by surprise, but it shouldn’t have. Most good investors I have talked with are inherently inquisitive, choosing to value a proposition based on their analysis, rather than getting caught up in the hype.
DMGI’s business model puts it in a position to be even more discerning than the average early stage investor or VC. “We are operators, so we typically invest for control,” he explained. “There are a number of ways that we can get to that position, including starting with a minority equity stake. While most venture investors look to take a small stake in as many promising companies as possible, DMGI prefers to work with a focused number of opportunities and we take a long-term perspective.”
Companies that are owned by DMGI have the commonality of all monetizing business to business information. They fall into three primary verticals; education, commodities and energy, and property information. Currently property information is the largest vertical both in number of companies and amount of revenue.
DMGI is a subsidiary of the Daily Mail General Trust, which also owns the British newspaper The Daily Mail and its online counterpart which it claims is “the world’s most visited English language newspaper website”. They have been in the business of information since 1896. Now the whole world is talking about information, DMGT has known its value all along. Other companies owned by DMGT include RMS, a catastrophe modeling business, Euromoney Institutional Investor (in which it has a majority holding) and dmg::events, a company that puts on trade conferences, mostly in oil and gas, construction and hospitality.
In a broad sense, DMGI is about proprietary data, but Erik believes there is much more to building a successful data company than simply delivering information. He elaborated on this concept, “Over time, data will become more and more readily available as a result of various open data initiatives and the ability to apply big data and machine learning techniques to pull data from every edge of the Internet and make sense of it.”
Over time, data will become more and more readily available as a result of various open data initiatives and the ability to apply big data and machine learning techniques to pull data from every edge of the Internet and make sense of it.
Erik sees workflow solutions as a great way to build data into processes that property professionals are already implementing. “All of our companies excel at collecting the most complete, accurate and timely data but more importantly, they focus on delivering that data through solutions that enable users to apply that data to run analytics or integrate it seamlessly into everyday workflows. Some examples of such solutions include Xceligent’s Spaceful, SiteCompli and EDR’s Lightbox,” he said.
While a clear investment thesis is important, success ultimately boils down to DMGI’s ability to choose winning companies with which to work. DMGI looks for a number of key characteristics in the b2b companies it chooses to engage. “First we want a good entrepreneurial management team, without that it is a non-starter,” he said. “We also look for companies that are positioned to become a market leader and have the ability to benefit from DMGI’s long-term perspective.
Equally important to intrinsic company characteristics, is the potential for DMGI to add value to these companies. The value we add can help the management teams evaluate and prioritize growth opportunities in existing and new markets, and ensure that they have the right team members to drive and support future strong growth.”
He also talked about concrete competitive advantages or what he calls “moats”. I asked him if that required patent protected intellectual property. He pointed out that a patent isn’t the only way to build these medieval sounding defensive structures. “While having patents in some cases might make sense, patents have downsides, including cost of filing and enforcing, as well as being searchable by the competition. This is especially true for process patents, which are probably more relevant for many of the CRE Tech companies today.”
He added, “Many companies are attractive because they have found ways to collect data that is otherwise too painful or costly to collect. Others find new ways of combining data to yield powerful insights. Still others have developed beautiful products that can enhance the efficiency of users’ everyday workflows. Ideally, you would want all these factors present!”
Many companies are attractive because they have found ways to collect data that is otherwise too painful or costly to collect. Others find new ways of combining data to yield powerful insights. Still others have developed beautiful products that can enhance the efficiency of users’ everyday workflows.
A hot topic is many of my latest articles has been the growth of CRE technology internationally. DMGI, like myself, sees a lot of opportunity abroad. Erik commented: “As international markets become more transparent, and as the level of sophistication of the investor base increases, there will become an increase in demand of professionalized b2b data. India, for example, over the past decade has had more and more foreign investment, so there is quite a bit more institutional grade commercial real estate being built.” DMGI has made investments in two Indian proptech startups that I mentioned earlier, Propstack and Liases Foras. They provide info and analytics on commercial and multifamily developments respectively.
Erik talked to me at length about a lot of the new developments in commercial real estate technology. When I asked him about what fresh new innovations excited him the most, he told me that the potential use of blockchain (the technology behind the digital currency Bitcoin) to record verified property info was an interesting proposition. “I was at a conference about seven months ago and someone in the audience asked a panel of CRE experts their opinions about blockchain. There were a lot of blank faces on the panel.” He admitted that he himself didn’t know much about the technology at the time, other than having heard of Bitcoin. “I think we have all learned that this new technology can be applied to a number of industries,” he told me.
To stay ahead of the curve in trends and technology, DMGI advises the companies in his portfolio to spend a lot of time talking to their customer. “While many of the great new startups in the CRE space do this quite well, our companies are encouraged to spend a lot of time with customers throughout the product development cycle. It’s the best way to validate what a customer’s pain points are, and which potential features of a solutions are most valued,” said Erik.
Being an operator of multiple players in a vertical gives DMGI some specific advantages. Erik and his colleagues are always on the look-out for ways to leverage their individual companies’ offerings to create derivative solutions. He explained, “We may have several companies that work with a certain type of customer, so we look for ways to connect elements of the solutions from each of our companies to form a bigger, more differentiated solution. We take a portfolio level view to try to see if there are dots that can be connected that the individual companies might not see themselves.”