A new data-driven analysis of start-up investment has been launched by US-based The Startup Genome, which has created the Investor Compass, which allows investors to track the progress of companies they work with.
The Startup Genome aims to increase the success rate of start-ups, namely tech start-ups, and accelerate the pace of innovation globally.
It is the brainchild of entrepreneurs Bjoern Herrmann, Max Marmer and Ertan Dogrultan.
“The Investor Compass [is] a dashboard for investors, advisors and service providers to aggregate the data of the companies they work with in one place,” the team said in an email.
According to the team, the Investor Compass leverages the Startup Genome methodology and database of more than 17,000 businesses to augment the dashboard data.
“This augmented view of a portfolio’s performance enables investors and advisors to quickly see who is doing well and who isn’t, and then decide what actions they need to take,” the team said.
In a blog post devoted to the Investor Compass, Startup Genome said the shift to a “quantitative alternative” is a “major step towards opening up the data-driven business frontier”.
“In our last post, we shared findings on the explosion of start-up ecosystems around the world,” it said.
“This has been followed by commensurate growth in individuals becoming angel investors.”
“With the… imminent rise of the equity crowdfunding market, we can only expect another boom in the number of start-ups and angel investors.”
According to Startup Genome, the current investment evaluation tools – of intuition and social proof – will soon be unsustainable “for rookie and veteran investors alike”.
“A much larger ecosystem will mean… investors will have difficulty sorting through the noise, causing many good start-ups to fall through the cracks,” it said.
“Increased start-up capital efficiency amplifies this problem by enlarging the investment funnel, with a fixed amount of capital needing to be allocated across many more start-ups.”
“Additionally many of these new start-up investors don’t have very good intuition about what a good start-up looks like.”
Startup Genome said benchmarks of the right metrics, in addition to automated due diligence tests, can allow inexperienced investors to “approximate the intuition” of experienced investors.
“A data-driven approach looks to be a piece of the puzzle to handling increasing deal volume and establish scalable standards,” it said.
“We should not underestimate the power of data to enable new novel applications. Every new industry that data flows into, it seems to disrupt.”