How Mattermark Teamed Up With Bloomberg Beta to Predict Who Will Start Companies Next

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bloombergIn June of last year, Mattermark launched on the very same day that Bloomberg launched their own venture capital fund. Just a week later, I was pleasantly surprised to find myself visiting Bloomberg’s beautiful waterfront office (I had to snap a photo!) in San Francisco to meet with Bloomberg Beta partners James Cham and Roy Bahat, who presented us with an intriguing proposal.

In Silicon Valley, where access to deals is everything, it’s not enough to find the next Facebook, WhatsApp or Box already at work in a garage or coffee shop.

James and Roy, along with their partner in New York, Karin Klein, had a question. They saw entrepreneurs as their customers, and wondered why in venture — unlike every other business — people generally wait for their customers to come to them. They wondered whether there was a way, given all the new sources of data out there, to find potential founders before they started their companies. Maybe we could use data to meet the next Mark Zuckerberg, Jan Koum or Aaron Levie months or even years before anyone else in the industry. Unlike our core product, which measures growth signals of existing companies, the founders of Bloomberg Beta asked us to build something much more challenging.

The goal of the project was to use big data, machine learning, and public sources of data to answer the following question: Who are the people who have not yet started a venture-backed company, who are most likely to start one?  We started with people living in the Bay Area and New York, where Bloomberg Beta focuses its investing.

With our curiosity piqued, we were thrilled to take on the project and Bloomberg Beta quickly came on board as our first paying customer.

Mattermark Founder Prediction Is 25X Better Than Chance

We conducted a study of potential founders spanning an initial population of more than 1.5 million professionals connected to technology startups. The study evaluated leading indicators of future venture-backed founders at very large scale, including a diverse population of people connected to tech through their companies, coworkers, and backgrounds. There is so much data available now that we were able to take into consideration a wide range of factors — including some obvious ones like education, previous employers, seniority level, role within a company, geography and age.

The 350 top-ranked members of this group — our Future Founders — are getting a message today from Bloomberg Beta inviting them to private events in either New York or San Francisco, where Beta plans to begin a program to connect them to each other, and to opportunities to explore starting a company. They are a wonderful group and will get a lot out of each other, regardless of whether they ever start a company.

Now, do we think most of these people will actually start companies? No. Based on the sample population of people related to the startup ecosystem who we included in our study, an individual in this group has only a 0.66% chance of starting a company. While we believe the future founders group has a 17% chance — 25x higher — that’s still going to be the minority of members of the group. But maybe we just put a little idea in their head…

And who are these people? We won’t be releasing their names, since they didn’t ask to be included on this list and we want them to be able to keep their privacy if they choose. (And we won’t be offering this list to others.)

But there are some patterns we can talk about. Some results ran counter to commonly-held thinking about founders, but other patterns revealed that conventional wisdom can be stronger than just a hunch. For example, the most predictive bucket of future founders were Stanford graduates with Computer Sciences degrees who are currently working (but not founders of) a venture-backed startup. Go figure.

Here are some surprising things we learned:

  • 38% of venture-backed founders are over 40 years old

  • Only 15% of venture-backed founders have a Computer Science degree

  • Management consultants are more than 2x more likely to be venture-backed founders than engineers

  • 43% of venture backed founders worked at a venture-backed company immediately before founding

  • Two thirds of venture-backed founders were not in a senior leadership position prior to founding

  • Contrary to conventional wisdom, being “stuck” in the same company or position for a long time (even a decade) does not diminish your likelihood of becoming a founder

While predicting future founders is fascinating, it only tells part of the story. One of the biggest challenges any entrepreneur faces is making the initial leap out into uncharted territory. Whether incubated, accelerated, or bootstrapped in a garage somewhere, it takes incredible courage to take those first early steps and transition away from the well worn path of professional life employed by someone else.

We also recognize that this approach — assuming that founders in the future will look like founders in the past — obviously won’t capture all the founders, or even all of the most interesting founders. Starting a company is all about breaking the pattern, so following our pattern is only a great way to find some of the most interesting future founders.

One thing readers should understand is that predictions like this don’t take into account free will. Personally, I have no Computer Science degree, or college degree of any kind, but moved to San Francisco in 2009 to work for a venture-backed company for 3 years before starting my own. If this study tells us anything, it is that aspiring founders looking to move themselves along on the continuum have a checklist of things they can do to increase their odds, or can just skip all these steps and start a company.

Mattermark Daily – Wednesday March 19th, 2014

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From The Investors

David Lee of SV Angel says the number of startups doing hard stuff has skyrocketed and its looking a lot more like old school Silicon Valley once again in “Back to the Future”

James Wise of Balderton Capital is making some moves and looking into the future of VC in “Will Data Eat VC? (or, Why We Hired a Data Scientist)”

Matt Turck of FirstMark Capital asks “Can Bloomberg Be Toppled?”

Mark Suster of Upfront Ventures says founders can stop being cheap asses, and should employees comfy (but don’t be extravagant either) in“When Does Establishing a Good Startup Culture Outweigh Being Cheap?”

Sam Altman of Y Combinator announces additions to the startup incubator’s investing team in “Two New YC Partners: Justin Kan and Aaron Harris” and released a new request for startups in “New RFS — Breakthrough Technologies”

Just when we thought VC bloggers couldn’t get much more excited about SaaS Josh Stein of DFJ is leading the battle cry for enterprise software startups in “Laying Seige to a $750 Billion Dollar Castle”

Mark Cuban is still not a fan of Silicon Valley’s high valuations and entitled attitudes in “The Back to the Future Arbitrage of Silicon Valley and What It Will Take to Beat It”

Sarah Guo of Greylock Partners discusses two infrastructure themes her firm is excited about in “Transforming Infrastructure”

Bilal Zuberi of Lux Capital assesses VC efforst to regroup and begin deploying capital again in a contentious space in “Some Thoughts on Energy/Cleantech VC”

From the Operators

Janel Torkington of AppsZoom is bullish on cards and simple anticipatory computing in “Small Data: Why Tinder-Like Apps are the Way of the Future”

Laura Klein of Users Know suggests you talk to users who abandoned your product after just one try in “Learning Why Users Leave: The Most Important User You’re Not Talking To”

Andy Dunn of Bonobos on why ecommerce is so hard in “E-Commerce is a Bear”

Startup lawyer Josh Cook on the importance of seeking more than just a check when fundraising in “Getting to Oz: Key Traits to Look For In Your Investors/Partners”

March 2014 Venture Capital Portfolio Momentum Rankings for More Than 300 Active Firms

Posted in Venture Capital: by .

Click here to view the March 2014 Portfolio Momentum Rankings

Three months ago, Mattermark released the first rankings of active venture capital firms, based on the growth signals of their portfolio companies. Today we present to you an updated report, which includes hundreds of active firms we did not previously score. We have included any firm with 15 or more active portfolio companies, who has made a new publicly announced investment in the past 6 months. The rankings are also broken out by B2B vs. B2C portfolios and investments by stage, to give you a sense of investors who are leading the charge in each of these categories.

Leading the Pack: Cowboy Ventures, FundersClub and Collaborative Fund


View the Rankings for All Portfolios

About Our Methodology

Firms receive points based on an average of the Mattermark Score for each of their portfolio companies. This score is based on momentum, or a moving average of relative week-to-week changes in signals like website traffic, mobile downloads, inbound links, and social media following. The more dramatically positive the score, the faster the growth. A score approaching zero indicates stagnation (this is where startups go to die) and a negative score indicates a company that is currently losing growth and public mindshare. With this score we attempt to answer the question, “do a growing number of people in the world care that this startup exists?” To control for differences in the startup lifecycle, scores are weighted by relative change rather than overall volume, allowing them to compete for points on equal footing.

View the March 2014 Portfolio Momentum Rankings

Why Measuring Portfolio Momentum Matters

Growing up, I loved to watch the stock market ticker scroll across the bottom of the television screen. I’d sit on the floor as my Mom got ready for the day and she’d ask me read off the prices for the stocks our family was invested in. As a young shareholder I pored over annual reports, news stories and regulatory filings from Microsoft, Oracle, Dow Chemical, PG&E, Merrill Lynch and other public companies in our portfolio.

Fast forward to today, and I’ve create a company that builds software to track the value of companies in a different way — through signals of growth and momentum surrounding companies that are not yet publicly traded. Because access to these information on and investment in these private companies is limited we had less data to work with, but venture capital portfolios themselves provide an interesting potential for a sort of ticker tape that tracks the intra-day movement of portfolio companies’ quest for traction.

When we initially launched portfolio benchmarking in November it was in response to the question, “when will you start scoring investors?” and I think it began as more of a curiosity than anything else. The outreach from Limited Partners (the institutions and endowments who invest in venture capital firms) has been extremely educational, and shines a light on just how challenging it is to invest and set performance expectations for an asset class tasked with bringing the future into the present through technology innovation businesses. There is nothing like speaking with an LP who manages billions of dollars in a trust that is hundreds of years old, or a pension that cares for hundreds of thousands of people, to understand how extraordinary it is that venture capital — and by extension startups — exists at all.

If I have learned anything in the past year about this industry, it is that being a venture capitalist is a very difficult job. In retrospect, especially with my two years experience as a founder, I hardly know why this was such a surprise. Making things, bring them to the world, and convincing people to give their time, attention and money to a new and untrusted brand is excruciatingly difficult. Venture capitalists are investing in and providing services to some of the most tortured souls in business.

My hope is that these rankings will celebrate firms that are making great calls, whether they are well recognized name brand or up-and-coming partnerships, and encourage investors to focus on taking a portfolio-wide approach to assisting their companies with growth. I believe shedding light on growth will encourage more of it, and as investors strive to rise in these rankings they will discover the only way to get there is by helping their portfolio companies grow.

View the March 2014 Portfolio Momentum Rankings