Early Metrics is an independent rating agency focused on early-stage innovative tech startups. Operating out of Paris and with a significant presence in London, Berlin, and Tel-Aviv.
The tech startup world continues to grow as the cost to enter has dropped substantially and the capital looking to invest in the private markets is ample. Cost of failure for entrepreneurs is dropping too.
At the same time, the failure rate continues to hover around 90% which makes it challenging for investors. Corporate VC, VCs, private equity funds, family offices, angel investors are eager to pay for high-quality deal flow that is conflict-free.
Undoubtedly, the subprime crisis brought to the forefront the long-standing conflict of interest in the oligopoly of rating agencies. The business model of all agencies has traditionally been that their “clients” are the companies that want to be rated. Early Metrics is Not paid by the startups they rate. Their business model puts the entities that are interested in partnering or investing in tech innovation, in the client position.
Early Metrics clients can subscribe to one kind of service that offers a few select rated startups per month. A client can also request a detailed rating analysis for a tech growth company that they are focused on. The “to be rated” company can be a partnership candidate or a first investment prospect or under consideration for the next round of investing. In other words, Early Metrics offers a conflict-free high quality deal flow service to subscribers. The focus is always on the growth potential of the tech innovation. It is a clear equity approach that offers certain KPIs and a proprietary qualitative component that covers elements that are traditionally gaged by instinct. We all know that VCs for example, access the founders, the team with a “gut + experience=instinct” kind of approach that they typically, brag about as “the” differentiation factor.
Early Metrics’ “secret sauce” has developed a process that accesses each team member, their management skills and actions, and most importantly, the value and risks of the team as a whole organism. This process entails training and certifying Early Metrics “analysts” that can interview the tech team and feed the data into the proprietary algorithm that is can provide signal on many fronts. In addition, the project and the technology are accessed and the ecosystem it is operating in. Therefore, the rating is a combination of an IT filter, data automation that allows a continuous rating (instead of a one-time snapshot), and the interview with the certified analysts.
Early Metrics is a great example of technology that addresses a significant agency problem in the corporate rating market. It also fills in an under-served part of the rating market, as it is focused on the equity aspect of innovative tech SMEs and early-stage ventures, instead of the credit part that most conventional rating agency address.
In practice currently, Early Metrics “plays” in the tech growth part of the market, with companies that have up to $20mil annual turnover. Naturally, startups are applying to be rated but Early Metrics ranks the “to be rated” pipeline as a function of the interests and focus of its clients. In simple words, their needs to be a match between the Early Metrics clients and the SME or startup, to move up the “to be rated” pipeline.
Early Metrics has already an established client base of corporates with an extremely low turnover. The art of growing their business successfully lies in sourcing high quality deal flow and matching it with their client base. Their “human” rating secrete sauce is explained in detail in their webinar that I thoroughly enjoyed attending “How human factors affect the growth of early-stage ventures” (free to watch here).
There are other companies that gather data and offer benchmarking reports in the startup space, but not with a laser focus. Oddup is the better-known name in the startup rating space but has a broad focus (not tech focus necessarily) and is strictly data-driven. Mattermark was another player who was sold (liquidation kind of transaction) in December to Full Contact (details here). StartupRanking focuses on social statistics (the SR web and the SR social).
In my opinion, this space has room for more service providers. Innovation in the rating methodology is needed and one way to develop the space is with a sector focus. An example is an impact startup rating service that can incorporate impact metrics. Impact metrics and innovation metrics are no low hanging fruit. Secret sauces can be developed for these.
Early Metrics is growing and according to their Angel List entry “As of today, we have rated 1000+ companies and serve 150+ clients such as VISA, HSBC, Airbus, Sanofi and Renault.” They are hiring also for their international expansion. They remain focused on bringing transparency to the rating process and serving the decision makers that fund innovation. Check out their content corner.
Efi Pylarinou is a Fintech thought-leader, consultant and investor.
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