Investing in startups is a risky business when up to 90 percent of them are destined to fail.
Industry analysts like Forrester and Gartner are reaping the benefits, attracting clients from 71 and 74 percent of the Global 500 respectively to their expert insights and market research reports such as the Magic Quadrant.
But their foothold could face a new threat in the near future from an emerging disruptor known as GrowthEnabler. The company has devised a series of algorithms that they claim identify the world's most innovative and valuable startups from a wide range technologies, sectors, and locations.
GrowthEnabler was founded in 2015 by ex-Gartner executives Aftab Malhotra and Rajeev Banduni. The two had spent almost a decade at the firm when they decided to use their knowledge to start investing in companies. Their stints working with big companies as both advisors and investors convinced the duo that they had discovered a huge business opportunity.
"We realised that these guys were struggling to really identify the next big technology disruption in the startup economy," chief growth officer Malhotra remembers.
"The reason they were struggling was because most of the big research companies out there, like Gartner, Forester, IDC were studying organisations that were more developed and more mature."
As the established technology analysts weren't providing the insights on disruption, Malhotra and Banduni teamed up to do it instead, with a new disruptive venture replacing opinions with automation to identify and score the right startup to invest in.
Startups tend to lack the comprehensive information available on listed companies due to the inherent uncertainty of their data. The GrowthEnabler platform is designed to clean up this information.
The companies are organised into early-stage, mid-stage, and late-stage startups and then analysed by predefined algorithms that cover thirty parameters across five separate categories: product innovation, business traction, financial strength, leadership and social media and branding.
The algorithms encompass both quantitative and qualitative data, applying data mechanisms to the latter to standardise subjective values.
Leadership is evaluated by culling data about the background of the founders, including the previous positions and organisations where they worked. A matching engine assesses the level of relevance to the job at the new company.
The greater the match between the two roles, the higher the higher chance of the expertise being of value. It also analyses educational background, feeding Forbes and Footsie rating mechanisms back into the platform.
Product innovation review benchmarks including patent applications filed by the founders that demonstrate their credibility, while business traction looks at the books through sources such as Companies House.
The social media and branding category assesses startups on their media mentions, awards, and social media traction. It covers activity and reach on Facebook and Twitter, engagement and interactions with prominent VCs and any awards won both domestically and internationally.
Financial strength is determined through financial data on funding rounds and investment raised from different databases. The information is then validated through multiple sources
"There about 40,000 high-grade, mid-grade and low-grade investors that we built a list of, and we've tiered them," says Malhotra. "We try to trawl their website as well as validation of the information."
The results are combined to provide a relative score on the overall value of the startup.
The company had previously predominately used a mixture of open source technology but is now increasingly incorporating its own custom creations.
"We're trying to make everything as proprietary and in-house as possible, simply because of security protection and also the venture capital groups like that in terms of our future growth," says Malhotra. "They like things that we created ourselves."
The business model
Dozens of FTSE 100 businesses currently subscribe to the GrowthEnabler service, but Malhotra is reluctant to reveal their names at this point.
"Our model is unique. It's not just a platform, it's a hybrid service," he says. "You buy the platform but there's a layer of advisory built into it."
The advisory layer of regular meetings with a seasoned analyst is meshed into the product to add a layer of protection for bigger decisions.
Malhotra admits that some of the startups featured were initially concerned about how they would rank but now see the platform as a free business opportunity rather than a potential threat to their reputation.
"With every startup today if you ask them what's the one thing you could have more of, it would be visibility," he explains. "They need money, but not infinite amounts of it, but they need visibility and that's hard. The index is a credible way of getting visibility because someone else is endorsing them aside from themselves."
A feature called Connect Up acts as a dating agency for corporations to engage with startups after reviewing their profile through a notification system. Another offering called Product Source set for release in three months' time will help C-level executives search solutions to their specific challenges from credible alternatives to tier one companies by analysing their ratings or requesting their suggestions.
If a company was losing millions of dollars a year on its supply chain, for example, and wanted software that could optimise warehousing, it could handpick companies it was interested in and automatically feed the challenge to them. It could then analyse their response before deciding whether it was worth further discussion.
The company covers all technology areas, but currently the core strengths are in the areas they've studied in greatest depth, such as the Internet of Things, where a comprehensive report was recently published, and AI, the subject of the next one. Eventually their capacity will fully expand across every sector of the ecosystem.
"The vision that we have here is that this platform is a one of a kind, to the extent that it becomes the most trusted and essential resource you go to try and better understand the idiosyncrasies of the startup economy," Malhotra explains.
"It starts with the fundamentals of indexes, scoring, transparency, and consistency that we're trying to bring, and then it evolves into intelligence and various other things. And as part of that comes this idea that if I'm someone in the financial services sector, I want to know about startups that could disrupt me in the financial sector across multiple technology areas: AI, AR, VR, or big data, for example.
"If I am, on the other hand, in the logistics sector, then I want to know about any company who could crush my warehousing and logistics supply chain and I don't want to be destroyed by Amazon in the future. I want to be well aware of this and I want to think 10 steps ahead.
"We've organised our 500,000 startups that we're analysing across 15 technology areas and 20 technology sectors. We're basically saying, no matter where you sit we'll give you a service that's going to be effective."