A software platform’s ability to integrate with leading industry market data sources is a key consideration criteria for many of our clients, especially when a project is focused on front office activities such as fundraising and deal origination. It is also an area that is far more complex than most assume, with the uninformed buyer and even certain vendors regularly making incorrect assumptions which, when left unchecked, can cause significant problems during the implementation phase.
In an effort to improve the alignment of expectations between the buyers and sellers of private capital software and data services, we’ve identified the five most important considerations to ensure no nasty surprises await unsuspecting buyers after the contract is signed...
1. Budget for Native Data Integration
Increasing spend by selling additional licenses to new users at existing customers is a core sales activity for market data providers. While CRM integration can increase stickiness, it also threatens a loss of control over which end-users can access data and impact the demand for more seats. This factor, in addition to the additional value which users gain via integration, is a key rationale for a potentially hefty price increase from the market data side when activating a native, pre-built integration.
While it’s not necessarily the software vendor’s responsibility to proactively warn prospects of higher costs from the data side, this information is not always forthcoming, resulting in an unpleasant surprise after the contracts are signed! On both the data provider and software side, one-off fees for activating native integration are also relatively common and should be discussed as part of pricing negotiation.
2. “We don’t have a Native Integration, but we can integrate using their API.”
We hear this phrase all the time from software providers. With some notable exceptions, this throwaway line leaves out A LOT of what lies in store for unwitting buyers, even if it is technically true.
Firstly, the cost of API access from the data side will be significant, even with restrictions on the volume of calls. Then you have to build and manage a custom integration, and while some software providers are able to build such functionality efficiently, this is certainly not always the case. In many cases, the combined cost of access and engineering can easily exceed the cost of licensing the software itself.
It is certainly telling that when we ask how many clients have built such integrations, the answer is commonly zero! Of course, sophisticated users are willing to invest in such developments, and certain platforms do better than others at facilitating these ambitions, but such projects require commitment and planning.
3. Not All Integrations are Built Equally
Native data integration is not a tick-box exercise. As with any other feature, the quality of market data integration can vary significantly between software platforms. In some cases, the extent of the data being integrated can also vary, with providers prioritizing data to support fundraising over deal sourcing or vice-versa. When we are working with clients assessing platforms, we always ask to see this functionality demonstrated and encourage buyers to consider the value-add which the integration can provide.
4. Beware of Limitations
Most data providers will place limitations on the amount of data that they allow to be integrated at any one point in time, and will also place limits on which data can be transferred across to the software permanently. This helps to keep control over the data and reduces the risk of clients extracting, for example, all LP Investor data ahead of a fundraise before canceling the data subscription. It’s important to understand such limitations when considering workflows and planning how software will support certain processes.
5. Do They Go Both Ways?
Market data integration is often considered to be a one-way integration, but there are certain providers which offer two-way integration where data from software can flow into the data provider platform. For example, CRM data flowing into a private company data platform can highlight the extent of any prior communication with entities in search results. With less potential for cannibalization on the software side, we expect to see growing popularity for pre-built two-way integrations in coming years.
Bonus: Off-the-Shelf Integration
While the focus of this article has been on costs and considerations from activating native integrations or building custom API-based solutions, it is increasingly common to see ‘off-the-shelf’ integrations with market data providers such as CrunchBase included within the base cost of software for all users. Coupled with technology to automatically associate client-added entities with the included data source, such functionality can be highly valuable and is often seen as a differentiating factor when comparing different software solutions.
NO SURPRISES!
Our procurement process is designed to ensure clients understand the hidden costs and most important considerations when evaluating software and data.