Personal finance gurus and self-help books will all tell you that the best way to plan for your financial future is to start investing. There are safe options, like bonds, but the real pay-off comes from stocks. But the market hasn’t been too kind to retail investors in recent years. That fact became painfully clear with the Facebook debacle, where rising price targets and an increased float created a feeding frenzy that left retail investors footing the bill.
A new site—Estimize—came out of beta Tuesday with an aim to create a financial estimates platform that crowdsources earnings estimates from its community of users. And the company just closed a $1.2 million Series A round from Bob Green of Contour Venture Partners and Jim Savage of Longworth Venture Partners.
The site is an open sourced financial estimates platform that allows members to publish their own company earnings forecasts. Since launching in December 2011, the community has grown to over 9,000 members and includes members of every major hedge fund, investment bank, and asset management firm.
The site allows for a certain amount of anonymity—actually, pseudonymity—and relies on track records of accuracy to generate its consensus. In other words, while anyone interested in stocks can join, only those with a proven history of accurate estimates can affect the Estimize consensus. This allows aspiring analysts to go head-to-head with professional analysts and amass a following based purely on their accuracy.
And the site is proving that it’s more than just a fun idea. For earnings releases with 20+ estimates, the Estimize consensus is more accurate than the Wall Street consensus 77% of the time.
“Sell-side analysts are not paid to be accurate, they are paid to keep their investment banking clients happy. So there is an inherent skew in their estimates,” Estimize founder and CEO Leigh Drogen tells me. “Buy-side and independent estimates, whether they be from retail investors or professional hedge fund analysts, aren't tied to the same ugly incentive structures as sell-side bank analysts.” Consequently, he says, “it produces a consensus estimate that is more aligned with the true expectations of the market.”
Drogen says that while he was working at Geller Capital, the team knew that there would be less volatility among earnings estimates if they had some buy-side estimates to work with. Social media helped spur that along by drawing a large number of contributors to one spot.
“I thought it was the right time finally to give it a shot. But to be honest, I don't think it was really a hugely innovative idea. A lot of people have had it. We just decided to execute on it,” says Drogen.