Whether you believe that evaluating startups is a matter of art or science, it’s hard to argue that more data doesn’t make the job much easier. But, for the most part, comprehensive data on early stage tech companies is hard to come by.
Over the past few months, the Startup Genome project has attracted about 35,000 signups and 17,000 active business users – and amassed a healthy amount of information — with a free data-driven benchmarking tool for startups. On Thursday, it launched a new tool that brings data analytics and startup code-cracking to investors.
Co-founder Bjoern Herrmann said Startup Genome started out as an academic project, but is evolving into something more sustainable as it attracts interest from startups and investors around the world, as well as Fortune 500 companies and other kinds of stakeholders. It recently raised a small amount of seed money from seasoned entrepreneur Steve Blank and others through Angel List.
Just as the Startup Compass tool helps entrepreneurs use data to allocate resources and align their teams and stakeholders around key decisions, Herrmann said, the new Investor Compass does the same thing for people either considering new acquisitions or monitoring current investments.
“Investors ask a lot of questions trying to understand the market better,” he said. “We make this process much easier.”
Using machine learning and artificial intelligence, it automates analyses to benchmark a startups’ key performance indicators (KPIs) against other similar companies, so investors (and startups) can see how their KPIs stack up against their peers. It also runs more than 50 red flag tests to calculate a company’s risk profile and venture fundability. The tool lets investors quickly review indicators such as customer acquisition costs, profitability timelines, team size, user growth and burn rate.
“It also provides an assessment of where the company is in the company lifecycle – one of the common problems for investors,” Herrmann said. As opposed to previous attempts to quantitatively analyze startups, he added, Startup Genome doesn’t apply traditional financial models to startups, but identifies the unique metrics that they believe are most relevant for startup success.
Right now, information in the system is fed in by the startups themselves and anonymized to protect their privacy. Investors only see individual startups’ data with permission from the company, otherwise they see benchmarks that include clusters of similar companies.
Herrmann said their plan is to increasingly automate the data collection process through APIs, starting with data from Google Analytics. In the next year, he said, they plan to build APIs that will allow startups to share data from Salesforce, Quickbooks and other applications. The new sharing mechanism will also make it easier for startups to share data with investors, who might currently ask for monthly Google docs or spreadsheets.
The founders say they don’t think entrepreneurship will ever be a “paint by the numbers” kind of activity, but they do believe that more data and science specific to startups could help more entrepreneurs identify the signals that could help them succeed.
New York-based CB Insights also tracks private companies, including startups, although it’s more focused on financing and mergers and acquisition. Hermann said Startup Genome’s dashboards can be used to track the development of a company, while CB Insights and similar research firms might be more valuable for portfolio management.
As a Kauffman Foundation report and venture capitalists like Fred Wilson have pointed out, the VC industry has not delivered returns that exceed the public market for more than a decade. More data alone isn’t the solution to the industry’s problems, but it could certainly help investors save time and potentially make smarter decisions.