Wierd idea: The Moody’s or S&P of startupland

Posted on May 27, 2015. Filed under: Uncategorized |

Last night I went for a long run along the west side highway. The first few miles of my runs tend to be a mediation of sorts. The ideas and pressures and things that are unresolved tend to percolate to the surface of my consciousness…and when I realize they are there…I let them go and the mind moves on. Depending on my stress level, this usually leaves miles 3-6 as pretty creative space. Everything afflictive has been recognized and released…and I start to think about possibilities…I love possibility…it’s in the suspension of disbelief that I have my most exciting thoughts. Last nights run led me to thinking about accreditation in the startup world. With more and more companies being started every day, and more and more noise (but also hidden signal), I thought about how independent accreditation or ratings could be a valuable and necessary layer in the venture and startup ecosystem. Today, that role is largely played by angel investors and incubators. For 7% of your company, Y-Combinator will put a badge on your startup that says “these folks are legit.” Techstars, Dreamit, Angelpad, whatever…all serve as light accreditation layers signaling to the market that you are worth investors’ attention. The capital and even operational/strategic value that they deliver varies from incubator to incubator, but I’d argue that the YC badge, and a known quality level for those who attain it, ends up playing a pretty critical role not just in a startup’s trajectory, but also in investors’ modus operandi. Angel investors used to perform a similar function. If you got Chris Dixon’s money, or Michael Dearing’s money 5 years ago, that meant something…a big vc fund would look at any deal that had that badge…today, with so many deals, so much spray and pray, so much leverage (via angelist, seed funds, whatever) behind angels’ brands, that accreditation might not mean as much as it used to. So the dynamics are changing a bit on how startups become recognized as legit, and as incubators try to scale, angels lever, and there are WAY more of both at this layer in the stack…I was wondering if a new sliver of acrediditation might be possible and even valuable. What if there were a brand analgous to Moody’s or S&P that was objective and able to rate or rank early stage companies as being legit or not legit…this layer would not be an investor…it would not be a “help you build your thing provider” or a “i’ll introduce you to Series A funds provider”…it would decouple the value add from the accreditation, and simply say “this co is a 7, and that co is a 4” perfectly objective, without further incentive, and it would publish this data to the market as a whole. It would use filters akin to the most sophisticated incubator or angel investors, but build a brand in objective rating. Startups that believed they were more legit than the attention they were garnering could go get rated (just like a company goes to Moody’s to get their bonds rated to attract more capital)…and investors who built trust in the service could use the data to focus on legit opportunities and filter out the noisy stuff. How this service would make money I didn’t quite hash out. I hate businesses that charge startups for help raising capital…so even though moody’s gets paid to rate bonds, I’d prefer it if this rating service wasn’t “pay to get ranked.” I don’t think charing investors for access to the published ratings would be a good model, or a service to the companies that went through the rating process. It’d be nice if the service could take 1% instead of 7% for the service of accreditation, but that sort of fucks up the incentive structure and objectivity…unless of course it was more of a “seal of approval” than a rating, where the mark of legitimacy was doled out sparingly…but i really liked the idea that every co that wanted a rating would get one…and that dynamic would prevent shitty startups from seeking ratings…so there’s more work to do on the business model side, but I think it would be fun to explore this accreditation layer in the stack, in a non-schlocky, non-bank your startup and get you in front of investors kind of way.

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One Response to “Wierd idea: The Moody’s or S&P of startupland”

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Seems like CB Insights or Mattermark would have access to the type of data you’d need to develop rankings like this. Interestingly it looks like they’re charging investors for access to the raw data and I imagine we’ll see premium products soon that include proprietary analysis like what you sketched out.

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    I’m a NYC based investor and entrepreneur. I've started a few companies and a venture capital firm. You can email me at Jordan.Cooper@gmail.com (p.s. i don’t use spell check…deal with it)


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