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 an open financial estimates platform which facilitates the aggregation of fundamental estimates from independent, buy-side, and sell-side analysts, along with those of private investors and students. By sourcing estimates from a diverse community of individuals, Estimize provides both a more accurate and more representative view of expectations compared to sell side only data sets which suffer from several severe biases.

    Over 3,500 analysts contribute to Estimize out of a registered user base of more than 20,000, resulting in coverage on over 900 stocks each quarter. The Estimize consensus has proven more accurate than comparable sell side data sets over 65% of the time.

    The firm was founded in 2011 by former quantitative hedge fund analyst Leigh Drogen, with the belief that the financial ecosystem was ready for an estimates platform built with an open and transparent philosophy.

    Estimize data is now available on major financial research platforms such as Bloomberg.

    1. Jim Savage
      Past Investor
    2. Greg Neufeld
      Employee