Analyst Report Methodology - KingsCrowd

December 1, 2021

Analyst Report Methodology

KingsCrowd is the financial data platform for the online private market. To help investors to make informed startup investing decisions, KingsCrowd provides both quantitative and qualitative ratings for companies’ crowdfunding rounds. The quantitative ratings are powered by KingsCrowd’s patent-pending, AI-driven algorithm supported by a robust online private market database. The qualitative ratings are made by KingsCrowd’s investment team. Selected companies will receive Analyst Reports with a specific rating — Top Deal, Deal to Watch, Neutral Deal, or Underweight Deal.    

The Selection Process

Early and Growth Stage

KingsCrowd’s investment team reviews companies and their equity crowdfunding rounds weekly. The research for each company is based on raise pages, offering circulars, SEC filings (Form C, Form 1-A, etc), financial statements, founders’ Linkedin profiles, independent market sizing, competitive landscape evaluation, and differentiator analysis. In addition, the investment team will sometimes reach out directly to founders for detailed conversations. After in-depth research and team-wide discussion, the investment team will then choose three to five companies per week to receive an Analyst Report. 

IPO Stage

KingsCrowd’s investment team also evaluates startups that are about to go public and are offering everyday investors the opportunity to invest at the initial public offering (IPO) price via platforms like Robinhood. After research and consideration, the investment team will choose one company per week to receive an Analyst Report. 

Final Decisions

Analyst Report selections are based on the quality of five key metrics — price, team, market, differentiators, and performance — and the risk associated with an investment in a given startup or IPO opportunity. Additionally, we consider market interest and trends as well as analyst interest within our investment team. Finally, the investment team will give companies that receive coverage a specific designation to indicate KingsCrowd’s view of its potential as an investment.

For companies that are not selected for an Analyst Report, it could be due to lack of information about its product or service. In other occasions, some exceptional companies may not be covered due to KingsCrowd’s finite resources, just as the public markets only select a set of companies to receive analyst coverage. A company not receiving a report is not a statement about the deal’s quality or potential. KingsCrowd is currently developing a feature which will enable members to request a report on a deal which was not previously selected for coverage. 

Analyst Report Designations

Top Deal: In general, a Top Deal typically excels in at least four out of the five metrics. For example, a Top Deal company solves a real problem with unique solutions and sustainable competitive advantages. A solid founding team, great traction, and exponential growth are also constituents of a Top Deal. Most importantly, a Top Deal can potentially generate substantial return for its investors.   

Deal to Watch: A Deal to Watch usually excels in at least three metrics. For example, a Deal to Watch has demonstrated great product-market fit and should be closely monitored over time. It could be a moonshot company that has a tremendously bullish outlook. In addition, a Deal to Watch typically has at least one mitigating factor that prevents it from being a Top Deal. This mitigating factor could be valuation, defensibility, performance, or something else. In general, a Deal to Watch has a bigger return potential than its risk profile

Neutral: A Neutral Deal usually has a balanced bearish and bullish outlook. For example, a Neutral Deal often solves a real problem, but the solution may not have the most optimal design or business model. A Neutral Deal company could have limited growth potential due to its competition and lack of differentiation. The performance of a Neutral Deal company may be moderate. In general, a Neutral Deal has an even risk-to-return profile. 

Underweight: An Underweight Deal is typically from a company that has many red flags. For example, the company may have very little chance of generating a return. An Underweight Deal company could also have extremely outsized risks associated with it. In general, Underweight Deals are investment opportunities where there appears to be a lack of promise or potential.

Analyst Report Structure

The structure of Analyst Reports have changed and evolved over time. Older reports (written before late 2020) will have more variability in how they present information. Reports written from late 2020 onwards will always have the same structure, regardless of the rating an investment opportunity received. This consistency ensures that every company receives the same level of in-depth research and due diligence. It also provides investors with reports that enable them to make easy and straightforward comparisons between covered companies. All Analyst Reports will have the following sections:

  • Synopsis: a brief presentation of the problem or need a company is trying to solve and a description of its products/services.
  • Price: analysis of the company’s valuation in this funding round or IPO event and whether it is reasonable based on revenue (if any), industry standards, and in comparison to other companies of a similar development stage.
  • Market: examination of the company’s target market and its growth rate. Relevant consumer trends that could influence the market’s behavior and issues surrounding regulation are also taken into account.
  • Team: the experience, education, and skill sets of the company’s founder are considered against the company’s operational needs. Other key team members are also reviewed, and relevant skill gaps are identified.
  • Differentiators: the company’s product/service is compared to that of its most direct competitors to determine if it is unique or not. Characteristics like capital intensity and patents are used to judge potential defensibility.
  • Performance: a company’s financial and operational performance are reviewed to identify if the company is financially healthy and if its product/service traction is growing. The company’s past fundraising efforts are also considered.
  • Risk: major risks associated with an investment in the company are presented. These risks are divided into eight main subcategories of product, team, market, legal, funding, investment terms, time, and financial risks.
  • Bearish Outlook: the weaknesses, negative consumer trends, risks, and factors working against a company are presented so that investors can understand the hurdles and concerns a company faces.
  • Bullish Outlook: the strengths, positive trends, and factors working in favor of a company are examined so that investors can get an idea of what the road to success looks like.
  • Executive Summary: the major points from throughout the report are brought together to provide a comprehensive, summary view of the company as an investment opportunity.

The Price, Market, Team, Differentiators, and Performance sections of Analyst Reports correspond to the five metrics that the KingsCrowd investment team uses to assess companies. 

Some Analyst Reports may have an additional section called “Updates Since Last Round.” This section will only be present for companies that have had previous online investment rounds. In those cases, it will cover what has changed for the company since the previous round, including any milestones that were achieved or failed, how the valuation changed, major team changes, and whether any new consumer or market trends have developed. 

Conclusion

By creating standardized but detailed Analyst Reports, KingsCrowd provides investors with the ability to easily identify, understand, and compare investment opportunities. It also ensures that Analyst Reports always provide an unbiased, research- and data-driven analysis of startups and their funding rounds. KingsCrowd publishes between four to five Analyst Reports each week for a total of 16 to 20 Reports each month.


Disclaimer: KingsCrowd’s quantitative and qualitative ratings should not be considered as investment recommendations. KingsCrowd is not a financial advisor. We provide information to aid investors who are making their own investment decisions. Analyst Reports speak as of the date of their issuance. KingsCrowd does not update Analyst Reports for events or developments subsequent to when the report was written.


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