PHL Inno's weekly "Startup Spotlight" feature highlights founders and new businesses cropping up in the region.
The startup: Theta determines the value of a company using customer metrics data.
Founded: 2018
Home base: Philadelphia
Founders: Peter Fader, a professor at the Wharton School of the University of Pennsylvania, and Daniel McCarthy, an assistant professor at Emory University in Atlanta.
The founders met in 2017 while McCarthy was a statistics doctoral student at Wharton. The duo were working on Zodiac, a predictive analytics firm that helped companies identify their most valuable customers. Nike bought Zodiac in 2018 for an undisclosed sum, and Fader was able to retain the rights to Zodiac’s customer-based corporate valuation model. From there, Theta was born.
The product: Theta makes its determination of a company’s valuation based on customer metrics, including transactions, customer acquisition costs, customer churn and the lifetime value of a customer.
“We’re working with private equity firms and other companies to help them understand what is the value of the enterprise and why,” Fader said.
Companies provide their financial data for Theta to analyze, and the startup determines their valuation while also highlighting metrics and attributes that to show a company’s value in financial filings.
“We don't care if it’s B2B or D2C or a product or service or a big, complicated company or an itty bitty little Shopify thing. It doesn’t matter because you're still acquiring, retaining, developing and getting money out of customers,” Fader said. “And so once you start looking at things through that lens, you realize, ‘Yeah, this is right. This is the way it should always be done.’”
Theta has also used financial filings and third-party sources that sell consumer transaction data, like IRI or Numerator, to predict a stock price for private firms about to go public. Companies have included Warby Parker, Slack and Farfetch. Theta does its predictive analyses almost like a “cocktail party trick” to determine what an IPO is worth, Fader said.
Funding: Theta has been bootstrapped since its founding in 2018, using funding from the Nike deal to get off the ground. Fader hasn’t ruled out the possibility of raising growth capital in the future.
“We don't feel any pressure to do so,” Fader said, noting the company is profitable.
The goal: Theta is diving into new product development this year.
The startup is developing a “quick and dirty” product that lets companies check their valuation through inputting customer acquisition data into an online tool, similar to checking a credit score online, Fader said. The startup may white label that tech to sell to other financial institutions and consulting firms to weave into their products but it is still weighing its options, Fader added.
Theta is on track to rebuild the Zodiac business now that its non-compete clause with Nike has expired. The startup is “very actively investing” in the software to revive and update the tech behind Zodiac, which is expected to be operational in the next few months, he said.
“The thing that we haven't been doing is where we compute all these customer lifetime values for every single individual customer and then actually allow companies to take action on the individual customers,” McCarthy said. “That's the thing that we were contractually forbidden to pursue through Nike. I think that that's the area that we're hoping to get to launch this product, or at least to have it be one of the components of that when we think about launching Zodiac 2.0.”
The marketing company is also marketing itself in 2022, including Fader's speaker circuit this year. He and McCarthy will attend private equity conferences and events to get the word out about Theta. The company has done well so far with no marketing, Fader said.
Theta has 13 employees located across the country, and IT may hire more employees to handle customer success and sales as operations ramp up.
