If data is the new oil, why don’t software companies value it?

If data is the new oil, why don’t software companies value it?

Time Stamp: September 6, 2023 12:32 PM
If data is the new oil, why don’t software companies value it? PlatoBlockchain Data Intelligence. Vertical Search. Ai.

Many say data is usurping oil as this century’s vital resource – but let’s dig deeper than the cliché. In today’s blog, Intanify’s CEO, Dylan Dryden will show you an unexpected connection between software start-ups and oil exploration companies. Here’s an exploration of what the hard hats can teach the hoodies.

Software startups and oil companies: at first glance, they might not seem to have much in common, but looking a little closer reveals some real similarities.  For instance, let’s consider OilCo, a pre-production oil exploration company. It’s core assets include ideas (such as well locations), data (like seismic information), small teams of highly skilled professionals (engineers and geophysicists), and technical proficiency (mathematical models and well designs). These elements bear a striking resemblance to what we’ll call TechCo, a pre-revenue tech startup, with its foundation in ideas (problem hypotheses and MVP), data (pertaining to the problem and users), people (developers and PMs), and a technical pathway from A to B (code). The similarities between the two don’t stop there; other resemblances can be seen in areas such as export strategies/ go-to-market plans and the interconnected network of surrounding ecosystems.

It is worth noting that all of these intangible elements hold significant value, despite their lack of physical presence. Although the accounts department may not classify them as assets, they play a crucial role in OilCo’s valuation, presenting an opportunity for developers to learn from the drillers. By providing asset-specific data in presentations, OilCo offers a clear link for investment analysts and potential acquirers to incorporate into their valuation models. I can attest, having worked with these models in a previous life, that these assets are what investors and acquirers ultimately seek to acquire.

While TechCo effectively communicates its narrative, strategy, and business model, it overlooks the foundational assets that serve as the building blocks for the company’s success, from the economic moat to the future revenue model. Without articulating these core elements, founders risk having their narrative misunderstood, ranging from visionary to fraudulent. Consequently, investors fail to attribute value to a substantial portion of TechCo’s assets, amounting to 90-100% of its total worth.

Why is this the case? I believe it’s industry maturity. Oil took over a century to reach its current position, and software will follow a similar path. Start-ups that embrace this early will enjoy numerous benefits, from funding opportunities to successful exits. In today’s demanding capital landscape with high investor expectations, it becomes even more crucial.

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