In the Fall of 2010 we embarked on an experiment. Our goal was simple. Can we devise a single measure that helps us identify emerging private technology companies? This single measure, the Momentum Index, is a rating from 0 to 100, where 100 represents the most rapidly changing companies. Every 6 months our team of analysts use a process to compute a new rating for every company we track. Companies are removed from our database when they die, go public, or are acquired. New companies are added as we discover them. Today our active database contains over 14,000 companies. The Momentum Index is not a measure to revenue growth. Rather, its a measure of change.
Over a two year period we rated companies and compared their performance to outcomes with great success. Although an imperfect process, the Momentum Index has proven to be a strong indicator of success, especially in the top 10% of companies we rank. Out of the top 100 companies from our initial 2011 analysis, over 60% have experienced a liquidity event. So in the Fall of 2012 we embarked to make it even better, creating Generation 2 of the Momentum Index.
Generation 2 and the Computation Process
Computation of the Momentum Index is a process. It is derived from a variety of information such as CrunchBase, LinkedIn, Twitter, Facebook, Compete, Search Engines, and of course a company’s website. Where data is missing, we use proprietary algorithms to generate estimates of data based on statistical correlation of available data. On a company by company basis, we derive from the source data a series of Component Indices, each a measure of a different aspect of the company’s performance. A Component Index is a measure from 0 to 100, but with a focus on a specific behavior tied to growth. For example, traffic growth to a company’s website is one index. Finally, based on the sector classification of the company, we weight the Component Indices together to form the Momentum Index to achieve the desired distribution.
In Generation 2 we have improved the algorithms used to estimate missing data, added several new data sources, evolved from 7 to 11 Component Indices, and expanded the sector classification used for final computation and weighting.
Thus all rating data released starting in 2013 is computed using the new algorithms. It is no longer directly comparable to previous ratings and, therefore, we will for the time being no longer publish changes in Momentum Index for a specific company. If you have been tracking your company’s index, be careful not to compare it to the past unless you also consider the process for computing it has also changed.
Trends and Distributions
The Momentum Index is specifically designed to “float” the best to the top. As shown in the following graph the distribution is designed to not be linear.
The upper 10% of the companies we rate have a Momentum Index in the range of 50-100. If your company is greater than 50 you are doing very well. If you are above 70 you are really evolving your business at an impressive pace.
We note that companies younger than 2 years in age generally do not have enough publicly visible traction to score well yet. Conversely we find that companies older than 15 years in age also tend to score lower, usually because of repeated strategy shifts or consistently slow growth. Of course, there are exceptions.
What’s Not Included
People often ask us “where is my company?” We should start to answer that first by letting you know what companies are intentionally not included in our database.
If you find your company is missing, let us know! Simply click here to submit your company for inclusion in the next analysis run.
What Is It All About?
Our team consists of experienced technologists and venture professionals with decades of experience. At the core we love to find new emerging tech companies and watch them skyrocket to the top. Sometimes you can learn the most by watching the winners, and time is short, so the Momentum Index lets us know who to watch.
In addition, our strong partnership with Akkadian Ventures provides direct benefit to the entrepreneurs of leading tech companies through powerful early liquidity programs. If you are a shareholder or option holder in a company rating higher than 70 on the Momentum Index, and cash flow, diversification, or risk-free option exercise is of interest to you, contact Akkadian Ventures. You just might be glad you did.