ENSURING THE WORLD’S SMARTEST ORGANIZATIONS ACCESS THE BEST STARTUPS
In 2010, we approached the National Science Foundation with the idea that we could use publicly available information and a variety of non-traditional signals to assess the health of private companies.
Having worked at American Express before, our founders had seen the challenges of assessing the health of smaller private companies (a.k.a. “thin file” companies). We believed we could use the vast amounts of unstructured and semi-structured information that is being created to better understand the health of these opaque companies.
We proposed using machine learning and advanced language processing techniques to build a system that would solve for these challenges. The NSF provided several grants to CB Insights to develop this technology.
With NSF support, we worked towards a model dubbed Mosaic that would aggregate and synthesize information about these companies from disparate sources and programmatically assess the health of startups.
Think of Mosaic as a FICO score for startups. By using Mosaic, capital, partnerships, talent, time, and attention would flow to the right companies, thereby minimizing misallocations of these resources.
To illustrate the power of Mosaic, we worked with The New York Times to predict 50 future unicorns (companies that would eventually be valued at $1 billion or more) back in 2015. As of early 2019, 24 of them have hit that mark (48%).
If we were a venture firm, this kind of hit rate would make us legendary. Our secret weapon has been Mosaic.
What is mosaic?
Mosaic is a quantitative framework to measure the overall health and growth potential of private companies using non-traditional signals.
The Mosaic score is comprised of 3 individual models — what we call the 3 M’s, each relying on different signals (although all the signals utilized are not revealed for obvious reasons).
The quality of the market or industry a company competes in is critical. If you are part of a hot industry, that serves as a tailwind to push you along. Conversely, being in an out of favor space means fewer investors, partners, media, and more.
The market model looks at the number of companies in an industry, the financing and exit momentum in the space, and the overall quality and quantity of investors participating in that industry.
The money model assesses the financial health of a company, i.e. is it going to run out of money? Our model looks at burn rate, the quality of the investors and syndicate that may be part of the company, its financing position relative to industry peers & competitors, and more.
The final model is momentum, where we look at a variety of volume and frequency signals including social media, news/media, sentiment, and partnership & customer momentum.
We look at these on an absolute and relative basis vs. peers/industry comparables. The relative piece is critical as it ensures that, for example, enterprise software companies who may get less media attention or who spend less time on social media are not penalized versus consumer-focused tech companies.
How do our customers use mosaic?
Pinpoint fast-growing private companies to understand viable business models, products, and technologies
See fast-growing markets and industries before anyone else to inform executives on strategic decisions
Competitive Intel / Market Research
Assess the health of startups competing in your industry to advise your build, buy, or partner strategy
Corporate Development and M&A
Monitor the health and growth potential of possible acquisition targets as part of your due diligence process
Corporate Venture Capital
Identify the startups with the highest growth potential to satisfy your corporate investment philosophy
Backed by the National Science Foundation
It is worth noting that this is a very hard problem to solve and one we’ve been tackling for years. And it is also a very important one. Private companies, especially those in high growth sectors, are the lifeblood of our economy and massive drivers of employment, innovation and commerce. Increasing their access to opportunities is a good thing for society.
Going forward, we look to integrate even more data signals into our Mosaic models for additional nuance and precision. To battle the inherent opacity challenge, we have developed and will continue to develop tools that ensure companies are putting the most accurate view of their performance in front of investors, customers, partners, and more. Currently, tens of thousands of companies and investors already update their data via The Editor.
We’re excited to extend the work we’ve done with Mosaic so far to demystify the health of emerging tech companies even further.