Performance (Bison) vs. Momentum (Mattermark)

by Michael Roth

Big data is coming to the private markets. New datasets covering management, web traffic, media signal, fundraising, and returns are quickly being aggregated together. One startup that has recently made headlines is Mattermark. They use soft signals to quantify Momentum Scores for startups. In a recent blog post, they used this score to create synthetic portfolios for investment firms to see which firm had the strongest portfolio. This investor ranking caught our attention here at Bison since it allowed us to create a comparison with our Performance Score, which ranks firms based on historic fund performance. Below you will find a chart of the top 50 firms venture capital and growth equity firms sorted by their Bison Performance Score. Mattermark had a Momentum Score for 21 of the 50 firms. We pulled the numeric position on the Mattermark Ranking for these firms and plotted next to our Performance Score.
As you can see above, it was difficult to find a correlation between the Bison Performance Score and the Mattermark Ranking. For the Bison top 50 venture capital and growth equity firms, the average Mattermark Ranking is 143 and the median ranking is 125. This is much higher than we would have expected.

Since we could not find an obvious correlation between the two data sets, we looked at the data from another angle. The Mattermark Ranking covered 379 investors (including venture, growth equity, buyout, and even corporate investment groups), of which 117 firms had a Bison Performance Score. We analyzed these 117 firms to see if a high Mattermark Ranking corresponded with the delivery of actual returns to investors as indicated by the Bison Performance Score. On the surface, there appears to be a relationship between the Bison Performance Score and the Mattermark Ranking.

However, the findings became less clear as we dug into the individual data points. It makes sense that Union Square Ventures would have a high Mattermark Ranking since each of their funds are easily in the first quartile. BlueRun Ventures, however, seemed to be unlucky when it comes to Mattermark’s scoring method. BlueRun was an investor in Waze, which Google bought last June. BlueRun Ventures IV, a 2008 vintage fund, has generated first quartile returns (1.6x net multiple and 21% net IRR) despite coming in dead last in the Mattermark Ranking.

Another example would be Correlation Ventures, which has a Mattermark Ranking of 97, but their 2011 fund – albeit still very immature – is valued at 0.86x invested capital. Meanwhile, OrbiMed Advisors, whose Mattermark Ranking is 337, has a 2010 fund – also very immature – that is valued at 1.43x invested capital. How can their Mattermark Ranking be so low when their last three funds are first quartile for their vintage years? Is this because OrbiMed is a healthcare-oriented firm and their success most likely can’t be measured by soft signals like web traffic, mobile downloads, or Twitter followers?

In summary, our basic analysis seems to indicate that Mattermark’s Momentum Score has a loose correlation to the Bison Performance Score. Once you start to dig in to the numbers, however, the margin for error with the score appears to be quite high.

By Michael Roth
Research Manager at Bison.co