Data Science Startup Retention Science Gets $1.3M, Fulfills Founder's American Dream

By Michael Carney , written on July 18, 2012

From The News Desk

If these guys can actually deliver on what they’re promising, this is going to be one hell of a company.” These were my initial thoughts the first time I heard about Retention Science.

Today, after a highly successful three month private beta, the big data company is opening its retention marketing platform to the public, promising to prevent customer churn and drive engagement for ecommerce businesses. Having spent more time with the founders, I’m more convinced about the product and beyond sold on the team.

Simultaneous to their launch, Retention Science is waving a $1.3 million vote of confidence via its freshly closed, oversubscribed seed round. The round was led by a larger than average $500,000 investment from Baroda Ventures, with additional participation from institutions Mohr Davidow Ventures and Double M Partners, as well as angels Bong Koh, Clark Landry, Paige Craig, Kunal Anand, Mike Greenfield, and several "Stanford PhD data scientists" as the company describes them.

Retention Science has built an intelligent customer profiling engine that outputs actionable retention strategies. The system combines a variety of signals such as demographic, social, and behavioral data, real-time web viewing patterns, and purchase history, to dynamically create relevant and timely offers for each individual customer.

Despite the fact that it’s several times more expensive to acquire a new customer than it is to retain an existing one, very few companies do the latter effectively. This dichotomy sits at the heart of the Retention Science value proposition.

Unlike technology-first etailers like Amazon, Zappos, and Ticketmaster which have in-house data science teams driving customer retention efforts, most large brands do not -- and, more importantly, don’t want to. Retention Science co-founder and CEO Jerry Jao names Nordstrom, Sears, and Burberry as examples of ideal customers, although he declined to confirm any such relationships.

During its closed beta, the company increased sales of participating ecommerce companies by an average of 133 percent. Since then, several participating and new businesses have signed up as paying customers. Jao would only go so far as to say that they range from LA-based startups to national brands, describing one as sending more than 10 million emails per day -- whatever that means.

The startup has taken steps to simplify the integration process for its customers. This includes building out channel partnerships, such as one with ecommerce platform provider Magento. Typical on-boarding takes two to three days with the bulk of the work done on Retention Science’s end, rather than by its customer. Enterprise customers pay the startup an annual SaaS fee based on volume, with its target account being $100,000 per year. Jao tells me his company is already billing at these rates, which is a good sign at this early stage.

The most impressive part of the Retention Science story, and one area that speaks to it's likely ability to deliver as promised, is the pedigree of its team. Jao’s co-founder and CTO is high school best friend and former Ernst & Young Entrepreneur of the Year Andrew Waage. Waage started his first business in high school building and selling custom servers and robotics to companies around Los Angeles.

Even more impressive is the path that Jao took to arrive at this point in his young career. The CEO was born in Taiwan and was an only child with a single mother. At the age of 14 he was, in his words, “one of the top ranked students in the country” and had already placed into the country’s equivalent of Harvard. As a result he got to skip the last quarter of 8th grade and spent the final few months before high school watching American movies. With an ever-growing itch to experience American culture first hand, he told his mother he wanted to move there... by himself... and then did.

“When I think back and tell the story, it sounds ridiculous,” says Jao. “At the time, I didn’t think much of it.” His strategy for choosing his American home was brilliant, although not necessarily obvious. While researching America, he came across a picture of a five-time Champion High School Academic Decathlon team posing with President Clinton. That was all it took for him to choose Woodland Hills, California as his new home.

Jao moved to the Los Angeles suburb not speaking a word of English and eventually graduated Valedictorian, while also being elected Senior Class President. He accepted a full ride to UC Berkeley and eventually earned investment banking and then consulting positions at Morgan Stanley and KPMG. At this point, Jao was able to support his mother in early retirement and begin thinking of taking a more entrepreneurial path.

Jao and Waage are on their third startup together over the last two years. The first was a quick and painless failure, and the second was the cashflow positive but ultimately under-inspiring social media rewards platform incentiBox, which they pivoted into Retention Science.

In early 2012, with a business model they finally believed in, the Retention Science founders joined the Santa Monica-based accelerator MuckerLab led by former ebayers Eric Ranala and William Hsu. The founders are operating lean with only two current employees, both standout data scientist PhDs, and two summer interns. With the new infusion of capital, Jao plans to hire four additional data scientists and begin building a sales force by year’s end.

Today Retention Science is operating at break even, no small feat for such a nascent technology company, although it’s a temporary state before they push the growth lever. The company has built a product impressive enough to attract the investment of some of the brightest data science minds around. None of this guarantees success, but given what I know about the the team, I wouldn’t bet against them.