SocialFinance1-1024x932New York startup Estimize set out to disrupt the business of sell-side analysis with the power of the crowd. After discovering that his site’s crowdsourced earnings estimates are more accurate than the Wall Street consensus 69.5 percent of the time, CEO and co-founder Leigh Drogen also learned that there was a big demand for the same kind of analysis for private companies.

Two trends are driving this demand. For one, companies go public later and later. You don’t see many sub-billion-dollar companies going public in the tech sector, at least, and if you do, they don’t get much love from sell-side analysts. That means they don’t get traded much, which in turn means their shares aren’t very liquid. So when tech companies wait longer to go public, that means the general public doesn’t have access to invest in the fastest-growing sector of our economy. It’s limited to employees of the companies, angel investors and VCs (some of whom invest money on behalf of public pension funds, etc, but that is a very indirect way to get a piece of the action).

And secondly, there is a backdoor way for investors to get a piece of the action via secondary share sales. However, anyone buying on the secondary market must be a sophisticated investor, precisely because they’re investing with little or no information.

Estimize today launches private company analysis, sourced from the crowd, for seven popular startups: Twitter, Hulu, Square, Airbnb, Pinterest, Palantir Technologies and Etsy. Drogen says it is the first step toward providing more robust data around private companies, whether they choose to disclose the information or not.

Beyond helping potential investors understand the value of these companies, Estimize hopes the analysis will help investors understand the market as a whole. In Airbnb’s case, for example, the company is larger than its public sector counterpart, HomeAway. Likewise, Airbnb’s revenue is eating into the revenue of large hotel chains, and it’s important for anyone investing in the sector to have a full picture of that impact.

Estimize has 13,000 members in its community, 2700 of which contribute analysis on quarterly earnings estimates. Using algorithms, Estimize creates a consensus, which gives weight to the contributors who are most accurate historically and eliminates outliers. With private companies, finding accurate information will be more difficult. But Drogen has already proven that the wisdom of the crowd is better than highly trained, highly paid Wall Street experts. Now they’re taking those skills to an area that’s not only interesting to investors, but to journalists. Right now the estimates are limited to revenue, but that will expand to other key metrics like active users, units sold or gross margins, Drogen says.

Estimize’s crowdsourced data is free to obtain. The company has begun to monetize by selling its data to sites like Gnip and StockTwits (Drogen’s former employer). Estimize is backed by $1.4 million in seed and Series A funding from Rob Ross, Todd Sullivan, Michael Bigger, Jacob Carlson, Contour Venture Partners, and Longworth Venture Partners.

Image via Drogen’s blog

  1. Estimize
    Crowd-sourcing financial estimates with a powerful analytics layer
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    Estimize is a VC backed, financial technology start-up that operates a platform for crowdsourcing structured financial data. Unlike other financial datasets, which are collected from the same pool of sell-side contributors, Estimize collects data from a much wider base of analysts. By crowdsourcing data from buy-side, sell-side and independent research analysts, alongside industry experts and academics, Estimize data is able to better represent the true expectations of the market. In fact, the Estimize Equity Dataset is found to be more accurate than similar sell-side only datasets over 65% of the time. Founded in 2011 by Leigh Drogen, as of June 2014 Estimize has over 30,000 registered users and 4,800 contributing analysts.

    Forbes named Estimize one of the 9 hottest startups of 2013. Estimize CEO, Leigh Drogen, was named one of Forbes 30 under 30 in finance for 2013. Fast Company named Estimize one of the world's top 10 most innovative companies in finance for 2014.

    1. Greg Neufeld
      Employee
    2. Jim Savage
      Past Investor
    3. Leigh Drogen
      Employee
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