Fundraising may be drying up for some segments of the tech industry at the moment, but one area that continues to get a lot of attention is AI, and specifically startups that are using it to build out revenue-generating businesses. Today, a startup called Zappi, which has built a market research platform that utilizes AI and automation to speed up processes (and cut down costs by some 10x in the process), is announcing that it has raised a whopping $170 million to expand its business.
The majority of the investment is coming from Sumeru Equity Partners, with undisclosed co-investors. Zappi is also not commenting on its valuation with this round, but as a mark of the size of the business: Zappi’s been profitable until about a year ago, when it shifted gears to grow; prior to this it had only raised around $22 million since it was founded in 2012 (with previous backers including the likes of WPP); and at the end of last year it broke about $50 million in revenues. (Note: Don’t try to use multiples of that to figure out valuation, that’s a metric that seems to be all over the place right now, ranging from 12x revenues through to 20x, and I’m sure there are higher and lower examples, too.)
Zappi today has some 350 clients, massive FMCG enterprises like PepsiCo, McDonald’s, Heineken and Reckitt, and the core of its product is that it helps these customers run surveys on ideas as they weigh up what kinds of products to develop as well as early insights into how best to market them. Zappi is mostly used at the pre-product stage, CEO and co-founder Steve Phillips said in an interview. He said that the market that it’s targeting is huge: $90 billion is spent annually on consumer insights and market research.
Typically, market research of this kind could cost these large FMCG companies as much as $20,000 and take between four to six weeks to complete, with lengthy surveys of panels of users and then a lot of data crunching to turn that into something that can be used. Zappi’s pitch is that for $2,000, it uses a mix of human surveys — it integrates with other companies that build those networks of respondents and might get as many as 300 or 400 people per campaign — plus a lot of other data, including its own consumer database that it says is made up of 1.2 billion data points — to get the same research done in four to six hours. That research comes complete with reports that can be used by Zappi’s clients in their wider in-house analytics, too.
The gap in the market that Zappi is aiming at is the fact that a lot of FMCG companies don’t have a lot of digital DNA to them. You can see this from the products themselves being physical consumables, but also in the fact that products are localized in how they are made and distributed, using typically analogue channels like shops and via third parties to carry this out. This also means, Phillips said, that they are “flying blind when launching a new product.”
Companies might go so far as investing in developing new products to test out, before even knowing if they would fly with users, which means a lot of cost potentially going into something that might never hit the shelves of any store. “We thought, we could automate that process to make it quicker.”
AI is making big waves in the non-tech world among companies that want to tap into it to speed up how they work, and that preceded the arrival of the COVID-19 pandemic. (PepsiCo, one of Zappi’s big customers, as one example has been using other implementations of AI in product development for years.)
But, the pandemic was acutely felt in that world, precisely because of how fundamentally tied a lot of those products were to physical supply and distribution chains. The fact that all of that needed to be rethought definitely gave a fillip to digital transformation and opening up companies to the idea of working with companies like Zappi in areas like marketing and market research, Phillips said.
“We see a world where every single company wants to know what its customers are thinking — driving tens of billions of annual spend on researching consumer insights,” said Sanjeet Mitra, George Kadifa and Sofija Ostojic, the three principals at Sumeru who led this deal, in a joint statement. “Zappi has reimagined the entire process by using innovative technology to empower enterprises to collaborate with customers in real-time, resulting in meaningful product and advertising decisions made more efficiently and thoughtfully. We are incredibly excited to partner with the Zappi team and are proud to invest in a company with culture and community impact at the center of its strategy.” All three are joining the board with this round.
Zappi raises $170M for its AI-based market research platform by Ingrid Lunden originally published on TechCrunch