Most venture capitalists will tell you that startup investing is more art than science. And in traditional venture capital, lack of data makes that statement true. Founders tend to keep information about their startups’ performance private, sharing it only with big investors. But with the advent of online startup investing, startups who want to raise funding from retail investors have to disclose much more information than before. If you look at any public raise page on a crowdfunding platform, you will see details on performance, growth, financials, product, future plans, and much more.
With this abundance of data, startup investing can begin to move away from art and towards science. At KingsCrowd, we started collecting data and rating companies three years ago. On average we collect around 500 data points on every company, and currently, we process as many as 60 companies every week (or more!).
To test the performance of our ratings, we continuously track the performance and valuations of startups as they raise subsequent rounds. We calculate the average valuation growth – the “unrealized returns” – across all subsequent rounds. Then we compare the average of that data to the average unrealized returns for highly rated companies (those that received a KingsCrowd rating of four or higher). In this Chart of the Week, we’re sharing our startup rating algorithm’s performance with you!
There’s a very wide range of unrealized returns across more than 300 subsequent funding rounds. Some startups saw unrealized returns as high as 70x while others were as low as 0.3x. Overall, the market average for unrealized returns was 2.7x (as of the first quarter of 2022). But the average for KingsCrowd’s highly rated startups was 3.5x. That means our startup rating algorithm is outperforming the market by nearly 30%. That’s the power of data-driven investing.
We’re constantly refining, updating, and monitoring our algorithm. So it will only continue to get better. And we believe so strongly in the power of data-driven investing that earlier this year we launched the first quantitative venture capital fund utilizing our rating algorithm. You can join us now and invest in a diversified portfolio of 100 highly rated US startups.
Note: All data used for the Chart of the Week comes from the KingsCrowd database and represents a snapshot of the crowdfunding market.