Episode 57: Marketing and Business Valuation with Dan McCarthy, Co-Founder of Theta

In the latest episode of Subscriptions: Scaled, we speak with Dan McCarthy, Assistant Professor of Marketing at Emory University - Goizueta Business School and Director & Co-Founder of Theta. This episode focuses on marketing and business valuation, Dan’s specialty areas.

Keep reading to learn more about our discussion.

Theta

Theta revolutionizes the world of private equity, corporate finance, and strategic management. 

The company uses customer-based corporate valuation (CBCV), an innovative, award-winning methodology for measuring and managing corporate valuation using quantitative models for customer behavior.

In the episode, we learn all about Dan’s experience working at Theta and how the company works. 

Dan McCarthy

The episode begins with Dan explaining more about his background and how he got into valuation, which is the quantitative procedure of determining the fair value of an asset or a firm.

Dan explains that he’s always been interested in finance at heart, even when he got a degree in engineering when he was younger. 

He also did a Ph.D. in statistics at the Wharton School. Dan notes that his background in finance has made investments in valuation a core part of his career.

Dan founded Zodiac, a predictive analytics software, as a service firm with his partner. He explains that the software automatically ingested a company’s transactional and CRM data, providing projections of what their customers will do. Marketers could use the software to decide who to target.

Zodiac was backed by leading venture capital firms, such as First Round Capital. Dan and his partner grew the company and sold it to Nike in March 2018. Then, the following month, they took some of the proceeds and used it to co-found a second company together: Theta.

With Theta, the pair focused on customer-based corporate valuation, which was the topic of Dan’s dissertation. Their client base is primarily private equity firms.

Then, Dan explains what Theta focuses on and how it uses a subscription model to operate. Theta engages with both subscription and non-subscription firms. 

Dan explains that the nice thing about subscription firms is that you have more forward-looking visibility into what your customers will do. 

COVID-19 and the trends in data analytics

A large part of the conversation involves discussing how the pandemic has affected major trends in data analytics. We learn how Covid has affected the business and how Dan and his team have communicated with clients during the pandemic.

Dan explains that the pandemic has had different effects on behavioral processes. He gives an example in the restaurant delivery category.

During the pandemic, the team at Theta saw a massive spike in customer acquisition before it settled down very quickly. However, they saw more enduring effects in how many customers were active, their order frequency, and the amount spent.

With the big bump in the amount of money spent, it was likely that many people were ordering restaurant delivery for dinner and lunch the following day. However, this amount has started to settle back into pre-pandemic figures. 

Dan explains the pandemic has had different effects on each process in a company. While he wishes there could be a one-size-fits-all answer for how the pandemic has affected certain companies, it’s not that simple.

He explains we have a lot of flexibility in detecting what effects are occurring and how to build the projection of what’s going to happen in the future.

Dan shares that they’ve worked with companies on both sides of the spectrum. For example, the pandemic has generally been beneficial towards eCommerce, but not for all eCommerce companies.

Those that are suffering from the effects of Covid-19 may want to know if there are signs that we’re moving toward pre-pandemic levels or not. The main concern many companies have is whether the effects of Covid-19 will continue or not.

Dan explains that Theta has also run several time analyses on different states and areas to see if there are signs of recovery in some geographies relative to others.

While there are various ways to find out this kind of information, Dan explains that it’s still tricky. He notes that the good thing is that typically the data is available to assess behaviors; you just need to know what numbers to crunch.

Technologies used by Theta

We also learn about the technologies Theta uses and how they’ve evolved in recent years.

Dan explains that the typical process for his team is to provide access for his clients to what’s called the data room. The data room is where all the datasets and transactional and CRM data are available for easy access.

Theta leverages cloud computing for its clients. The company does its analysis at the level of customer cohorts, where that cohort is defined as all the customers who are acquired within a specific unit of time.

This makes it easier to do all the computing because they don’t have to run the models on millions and millions of customers at once. Instead, the process is more bite-sized.

Dan explains Theta has spent a lot of time and energy to make their code efficient. The team dedicated plenty of time determining how they could run the same operations with less time.

He says that most engagements involve understanding data and validating the models. Theta uses predictive validation analysis for every engagement, which helps the team become confident that their models are predicting well.

Predicting consumer behavior

Toward the end of the episode, Dan speaks more about predicting consumer behavior. He notes that at the beginning of Covid-19, the team saw a significant decline in business, with a reduction of transactions.

This makes sense as many people wondered what would happen in the future, so they paused many of their deals.

Since then, many people have come to Theta saying that their revenue trends have been promising. As such, people want to know how to factor the effects of the pandemic into their decision-making processes.

Dan explains there’s been a lot of work on Theta’s part to optimize what they should do to understand how Covid factors into consumer behavior. But now that they’ve made that investment, it’s been net positive for the company.

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