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Do startups need a rating agency? Early Metrics thinks so

Scott Carey | July 7, 2016
The French company Early Metrics wants to become the Moody’s for rating startups, and here’s how the business rates London’s startup ecosystem

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The two year old French company Early Metrics has set up shop in London as it aims to become the rating agency for startups, bringing an objective methodology to assess a startup's potential growth.  

Like all good startups, Early Metrics is turning the incumbent business model on its head. Traditional rating agencies like Moody's or Standard & Poor's charge the company they are rating in exchange for the kudos of that rating.

This creates a fair deal of conflict of interest, so Early Metrics charges the clients, venture capitalists and large corporations, for access to a startup's ratings and a full report. Instead of rating a company's credit risk, Early Metrics is concerned with a company's growth potential.

Cofounder Antoine Baschiera says it is pre-due diligence rather than due dilligence, and more of a risk management tool. The ratings are "decision agnostic" according to Baschiera, meaning it's not just for investors but also large corporates looking to partner with innovative startups or companies exploring acqui-hiring (acquiring a company more for the people than the product).

The analysts, who tend to be experts in their fields - whether enterprise software or fintech - can rate a company in around 20 hours, and ex IBM and HP employees are among Early Metrics' ranks. 

Why get rated?

For a startup to get rated they simply have to ask Early Metrics nicely, comply with an interview, and supply the necessary documentation - a three-hour job according to Baschiera. The startup then receives a two-page certificate with their rating out of 100 and some top line objective insights such as SWOT analysis and market overview.

The company also signs a non-disclosure agreement so that their rating can't be shared with any Early Metrics clients without their express permission. Startups are used to removing middle men from the equation, but this one looks like a no-brainer, which is probably why Early Metrics has a 95 percent hit rate when contacting startups, according to Baschiera.

Clients then have the option to pay a £2,000 monthly fee to access the entire client base, from which they will be delivered select reports on companies that fit their investment portfolio. Or they can pay £3,000 per rating on a specific company of interest. Early London clients include HSBC, Visa, Procter & Gamble and Johnson & Johnson.

How the ratings work

Early Metrics claim that its rating methodology is scientific and completely objective. The methodology is built on three pillars: managers/founders, technology and market.

Baschiera explains the logic behind assessing founders: "We work with HR, psychologists and VCs to first identify what were the key skills that an entrepreneur needs to have. Some are hard skills, such as technical mastery, financial mastery and so on but a lot of them are soft skills, such as the capacity to self-assess.

 

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