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Our Investment in Dataships

May 18, 2023 | B2B Software / Gen AI

We first learned about Dataships through the Forum Ventures accelerator. San Francisco and Ireland-based Dataships’ mission is to help entrepreneurs turn data privacy compliance from a nuisance into a competitive advantage, which resonated with us given global data privacy tailwinds. In the months that followed, we got to know co-founders Michael Storan and Ryan McErlane, who founded Dataships after running a data privacy consultancy together. 

 

Being an early-stage investor in horizontal B2B software, we were surprised at Dataships’ high net dollar retention and low churn, which were better and steadier than we typically see at this stage. Usually, early-stage startups have more volatile metrics due to the experimental nature of finding product-market fit (PMF). Our first conversation with the co-founders revealed that they were thinking very similarly to the way we think about finding PMF  – from a position of creating real, tangible customer value – and we were eager to learn more.

 

Read on to learn how Dataships created a solution to a major data privacy problem, created customer value and delight, and ultimately increased their e-commerce customers’ marketable rate by up to 238%.

 

Problem: DSRs on the rise, Fines for noncompliance, Lack of trust

 

For US-based companies, data privacy requests rose by 72% from 2021 to 2022 – from 377 DSRs (Data Subject Requests) per million identities to 650 DSRs per million identities, respectively, according to a recent press release by DataGrail. 

 

For decades, companies have been collecting user’s personal data without their consent. Today, users are aware of how aggressive those data collection practices were, and how companies have profited from their personal data. They are asking the legislatures in their home countries and states to do something about it, and rightfully so.

 

New data privacy laws like the General Data Protection Regulation (GDPR) in the European Union (EU) empower users to file a DSR with any company that they suspect stores their personal data. When a company receives a DSR, they must let the user see what personal data the company is storing and transmitting. A user could then ask the company to delete those data or restrict their usage. 

 

The EU defines personal data as “any information that relates to an individual who can be directly or indirectly identified. Names and email addresses are obviously personal data. Location information, ethnicity, gender, biometric data, religious beliefs, web cookies, and political opinions can also be personal data.”

 

GDPR applies to any company that processes EU residents’ personal data, whether or not that company is located in the EU. GDPR is considered the gold standard for data protection. 

 

California somewhat recently released the California Consumer Privacy Act (CCPA) and other data privacy laws. Other states such as Colorado, Connecticut, Utah and Virginia have followed. These are all based on the GDPR blueprint.

 

The challenge for businesses of all sizes: You must be ready to fulfill DSRs in accordance with the laws of wherever your users reside. 

 

Penalties for non-compliance can be steep. Under GDPR, non-compliant companies can face up to €20 million in fines, and under California law, each individual violation can cost a business $7,500.

 

This regulatory tailwind creates both challenges for businesses to become compliant with global data privacy laws and opportunities for startup technology companies that aim to solve these challenges for businesses.

 

Solution: A globally compliant data privacy solution that increases revenue through trust building

 

The co-founders began Dataships with a product that allowed businesses to quickly become data privacy compliant. They predicted that data privacy tailwinds would affect most businesses operating around the globe. Those businesses would either have to build their own internal data privacy compliance functions and databases of all their user’s personal data, or buy an off-the-shelf solution. 

 

They found some traction in helping businesses in various industries comply with global data privacy regulations and building an internal customer data single source of truth. However, even given data privacy regulations sweeping the globe, their prospective customers often lacked the urgency to either build or buy a data privacy compliance solution. Perhaps an obscure threat of fines wasn’t a big enough stick to force them into action.

 

After trying several potential early adopter markets (as Outbound always recommends as part of a startup’s Market Experiment), e-commerce businesses emerged as an obvious early adopter market. More specifically: high-volume, global B2C e-commerce businesses. 

 

E-commerce businesses with a globally diverse customer base are feeling the GDPR-led compliance pains most acutely. And, they are also facing marketing ROI headwinds from Apple’s privacy updates that decrease their return on advertising spend on social platforms. 

 

The co-founders decided to pivot their value proposition from not only helping businesses become compliant with global data privacy regulations, but also being a source of revenue generation. That started to get the attention of their early adopters.

 

Creating customer value and delight

 

As we wrote above, one of the first things that attracted us to Dataships was Michael and Ryan’s deep, natural focus on creating customer value. They have been running experiments since they started the company, and they checked the ‘mindset’ box that we’re always looking for in founders: are you wired to fail fast and learn fast?

 

After deciding to focus on high-volume, global B2C e-commerce businesses as their early-adopter customers, they turned their focus toward the product features that were most likely to delight their early-adopters. What do these e-commerce shops want more than anything? Increased sales and revenue. The co-founders had a hunch that serving up tailored consent messaging at the time of checkout could lead to an increase in the number of customers checking out who would become marketable in future email, text, social and direct mailing campaigns.

 

There are two legal bases for direct marketing. One is consent (does a user opt-in or opt-out) or legitimate interest. Each country has its own rules and regulations around consent and legitimate interest. At one end of the spectrum, there is Germany, where you cannot send a direct marketing communication to a user unless they double opt-in – meaning they expressly opt-in, receive an email confirming the opt-in, and then click on a link in the email indicating that they indeed wanted to opt-in. On the other end of the spectrum, the US requires no opting-in at all, just that they haven’t opted out, (even then it seems to take ages to get off an email list). 

 

The co-founders ran this Product Experiment with some of their e-commerce customers with the objective of figuring out if serving a clear consent statement, tailored based on the user’s buying location, would increase the number of users to whom they could market.

 

The result? They found that serving clear,direct, geographically tailored consent messaging to users at checkout increased their e-commerce customers’ marketable rate by up to 238%. And later, after working with hundreds of e-commerce shops, they confirmed that marketable rates increased from an average of 22% pre-Dataships to 75% post-Dataships. This increase translates to increased revenue from direct marketing campaigns.

 

Outbound Capital and Dataships are now working together to measure these data by cohort overtime, and working to translate the increased marketable rates to actual dollars of revenue up-lift post-Dataships using our founder tool – Outbound PMF Insights

 

Co-investors and co-leads of Dataship’s series seed round,  Lavrock and Urban Innovation Fund, continue to bring their specific skills and expertise to the table in support of Dataships’ growth.

 

Conclusion

 

Outbound Capital invested in Dataships because the co-founders had:

 

  • Strong founder-problem fit
  • Assembled a team with the skills necessary to build a product to solve the problem
  • Exhibited a learning and discovery mindset and a bias toward experimentation

 

We’re further encouraged after working with the team to measure customer value. Being able to show their customers how their marketable rate increases substantially after using Dataships ties the value directly to the customer’s top line. High net dollar retention and low churn continue to be the norm among Dataships customers, demonstrating that they have product-market fit (PMF) within their early adopter customer accounts.

 

The future for Dataships is bright in the e-commerce market, and in other markets where data privacy regulations will inevitably continue to create challenges for businesses and opportunities for Dataships to create customer value and delight. 

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