When we started Estimize, Inc. in June of 2011 the vision was to build a company that would crowdsource forward looking financial expectations across a spectrum of different data sets. Our first area of focus would be EPS and Revenue expectations for publicly traded, US listed, companies.
Since launching that data set in November of 2011 we have more than 4,000 contributing analysts, 25,000 registered users, 140,000 people who viewed estimates this quarter, coverage on over 1,000 stocks this quarter, more than 17,000 estimates made in the last three months, and proof that our orthogonal philosophies work. Not only is the Estimize Consensus more accurate than the Wall Street estimate data set of record (IBES) 65% of the time, but more importantly it is more representative of the true expectation of the market, as determined by several peer reviewed academic papers, the Deutsche Bank quant research team, and our own quant research team (Vinesh and I).
Estimize was named to Forbes’ list of the 9 hottest startups of 2013, they nominated me to the Forbes 30 Under 30, and Fast Company named Estimize one of the 50 most innovative companies in the world for 2014. We still have a long way to go in building a large profitable business on top of this data set, but it’s obvious we’re on the right path.
Before getting to the real announcement here I want to quickly come back to an important point. The real goal of this company is to crowdsource expectations data. That data being more accurate than existing sources is nice, but the true goal is for our data to be more representative of expectations, because that is when the data can be most widely used.
With that said, today we are publicly launching Mergerize. It is, well, exactly what it sounds like, we are crowdsourcing expectations for mergers and acquisitions. You can head over to www.mergerize.com to sign up and begin making your predictions.
Why mergers and acquisitions? Two reasons.
One, it’s a great entrant into the whole world of corporate actions. The way we’ve built this platform will allow us to scale out into all kinds of other stuff, like IPO expectations, spin offs, FDA approvals, basically anything associated with a corporate action. Mergers and acquisitions was a natural starting point as well to bringing in the whole world of private and startup companies. Large public companies like no time before are being disrupted at lightning speed by startups, and they are increasingly turning to acquisition strategies in order to stem that tide, as well as add to their talent pools. We believe it’s important for there to be a transparent set of data around the expectations for these events that can have such a huge impact on a given company or a whole industry.
Now one of the main questions is, what will the efficacy of this data set be? Will it be predictive of future transactions, will it accurately represent the expectation landscape for these transactions, both, or neither?
This is an experiment. But my belief is that Mergerize at scale may end up being a self fulfilling prophecy. We already have dozens of corporate investor relations representatives on Estimize, and we’ve spoken to a good deal of them. And I’m not talking about $400M companies, I’m talking about $100B companies. I can see a day in the not too distant future where corporate strategy executives come to Mergerize to see which companies the crowd believes they should buy and at what price the crowd believes they should buy them at. Right now the only feedback a corporate strategy group gets from the market before an acquisition is from a few bankers who have an insanely skewed incentive structure and want to see a transaction go down. This should give corporates a better view ahead of time. Does the crowd think Visa should buy Square? At what price? This is going to be a lot of fun.
How might the resulting data be used by traders? Well for the quants, I expect that they will use Mergerize data to exclude certain stocks from their trading at certain times given that there is outsized risk associate with M&A transactions in their models. If Mergerize data can mitigate this risk by putting a “no trade” tag on certain stocks, it should be very valuable. For discretionary traders, specifically of the event driven persuasion, having a set of M&A expectations should allow them to take advantage of their own beliefs if they see that they are significantly different from the crowd. If the market feels a deal will take place, and you believe there’s a premium built into a stock because of that expectation, but you don’t think that deal is going to happen, then you probably believe at some point that premium is going to come out, and you should be short. My bet is also that there will be a high correlation between the velocity of people predicting a certain deal and the implied volatility of the target in the deal. I’m sure traders will figure out how to utilize that correlation.
We also emphasized the analysis section of the prediction on Mergerize a lot more than on Estimize. Your rationale behind why you believe that transaction will take place is very important and can add a ton of color. Maybe you want to convince Visa why they should buy Square, or convince Square why they should sell to Visa, this is a great place to make your voice heard.
We have included the whole list of startup and private companies found on Crunchbase, as well as about 4,800 publicly traded US listed equities.
There is a another reason we chose to build Mergerize now. This is the second year that I’ve been lucky enough as the CEO of Estimize to bring our whole company (10 now) down to Tamarindo, Costa Rica for a week of offsite work and fun. We are a semi distributed company, with team members in NYC, San Diego, Ann Arbor, and Hong Kong. It’s important that we get together at least twice a year (we do San Diego in late October as well). This year in Costa Rica I wanted the team to put down Estimize.com for a week and focus on something fresh, using some different technology and solving different problems.
It was amazing to watch five developers, a designer, and a product lead crank out the MVP of Mergerize in under a week. All while we went surfing in the mornings, got to watch an amazing sunset in the afternoon, and drank too much at night. Getting a chance to work on something completely fresh is rejuvenating for the team, and I highly encourage other startups to take this labs style approach once a year for at least a week. You never know what will come of it.
Mergerize.com is pretty raw right now having only taken a week and does not include many of the bells and whistles of Estimize.com, but the core of the experience is there. Over time as we see the platform grow more resources will be put towards it. Please feel free to send feedback and suggestions regarding feature sets you’d like to see to our head of product email@example.com.
Thank you for your continued support of our vision.
Pura Vida from the whole Estimize team!