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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

When asked how they can be objective when assessing something as ephemeral as leadership, Baschiera admits that it isn't "black and white" but research shows there are certain patterns that can be used to predict if a team will succeed. Early Metrics weights management over the technology and market aspects when it comes to the final rating.

Early Metrics doesn't try to assess how innovative a startup's technology or service is, but rather how likely the idea is to become a minimum viable product or service. It takes a deep look at the business model, the overall market, execution speed, and the startup's business plan for the development of the project.

For the market, Early Metrics' analysts study volume, depth and evolution by looking at things like the balance of power between the different non-competitors players (like clients and suppliers), the regulatory environment, the type and intensity of the competition, and barriers to entry. 

Finally, there's the financials: Early Metrics measures the quality and coherency of the financial statements to provide an idea about the manager's financial ability.

Of course, no methodology is 100 percent accurate, but two years in and Early Metrics is already seeing a strong correlation between its ratings and business success down the line.

According to Baschiera: "78 percent of the companies rated more than 75, which is a good rating, have shown concrete proof of success 12 months later, in terms of how much they have raised, the relative growth of the team or revenue growth. On the other hand more than 80 percent of the companies with a bad rating have underperformed twelve months later."

London

So, how good is London's startup ecosystem according to these methods? "The London ecosystem is so mature," says Baschiera, "the need to stand out from the crowd is higher than across Europe."

The quality of Britain's fintech and martech startups stands out for Baschiera. But, he says, for pure B2B software and hardware, other countries in Europe are stronger - including Germany and France.

Finally, Baschiera has one piece of advice for getting a good rating: "Focus on building the team, let yourself be challenged, that is when the idea starts to develop," he says. "Focus on qualitative metrics like the quality of the team and the feedback of your first beta users."

"Rather than trying to achieve huge volume from day one it is better to focus on a smaller pool of users and to have really interesting retention metrics at the beginning."

Source: Techworld

 

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