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BLOG  •  JUNE 2023

The Synaptic Growth Index: Quantifying Growth Momentum of Startups

1. Assessing Startups’ Growth Potential

Private investors today have access to a wealth of alternative data sources. These include but are not limited to employee count, website and app traffic, social media sentiment, and transaction data. This treasure trove of non-traditional information sources can help evaluate a company's performance as a whole. However, even with an abundance of available information, deciphering the different narratives from this data presents a challenge.


For instance, we see different narratives of performance in companies that have stellar product ratings on Capterra but low employee ratings on Glassdoor. This makes it difficult for investors to make the right decisions when looking at private companies.


Therefore, investors need a comprehensive and unified metric that can consolidate different stories from various alternative datasets.

2. The Synaptic Growth Index

After  years of research, testing, and experience modeling company data, Synaptic has developed the Synaptic Growth Index, a proprietary metric that effortlessly measures a startup's growth momentum!


This metric has been continually  refined to give investors a high-quality signal of growth throughout every step of the screening, evaluation and decision-making processes.

What does the Synaptic Growth Index measure?

The Synaptic Growth Index combines the growth momentum of companies into one easy to understand metric by evaluating data sets  like website visits, employee count, product ratings, app downloads and active job count. The Synaptic Growth Index provides an overall measure of a company's performance, with +5 indicating the highest level of growth momentum.


Using  Assure Health, Spring Health and Hinge Health (three companies within the digital health ecosystem) as examples, we see that the Synaptic Growth Index easily shows that Assure Health is growing faster than Spring Health and Hinge Health. Moreover, Assure Health has a growth index of +5 and has seen steep growth, making it a promising investment.

3. Why is the Synaptic Growth Index a useful signal?

The Synaptic Growth Index is a useful tool for evaluating company performance and competitive benchmarking, even when comparing metrics across different scales and timelines. It is also completely customizable to suit an investor’s preferences. Below are some key characteristics that make it a useful measure for investors:

  1. Comprehensive coverage

  2. The Synaptic Growth Index incorporates performance from datasets like website visits, employee count, product ratings, app downloads and hiring, providing  a comprehensive, holistic measure. Additionally, investors can use filters such as geography, industry, funding stage, and funding amount, enabling a more in-depth understanding of investment opportunities.

  3. Robust to fluctuations

  4. The Synaptic Growth Index provides reliable and consistent evaluation for investors regardless of seasonal variations and differences in scale and timeline. To achieve this, Synaptic uses annualized growth rates and scale normalization. This approach allows for accurate comparison and understanding changes in metrics more easily.


    For instance, a 10% growth in downloads for an app with 1M downloads would be categorized differently than a 10% growth in downloads for an app with 10K downloads, and thus both are normalized.

  5. Personalized

  6. The Synaptic Growth index is customizable to suit your investment preferences. Investors may add their own metrics to the index to make it more personalized.


    For example, those interested in mobile app companies’ growth can incorporate metrics like "app downloads” and "active users" to gain deeper insights into the performance of apps.

4. Leveraging the Synaptic Growth Index?

The Synaptic Growth Index is a useful tool for evaluating company performance and competitive benchmarking, even when comparing metrics across different scales and timelines. It is also completely customizable to suit an investor’s preferences. Below are some key characteristics that make it a useful measure for investors:

  1. Deal Sourcing

  2. Serving as a handy measure to source  and prioritize high-growth companies from a large pool of investments, the Synaptic Growth Index also serves as a cut-off score to narrow your search and sort companies in decreasing order.

    For example, investors wanting to invest in early-stage (Series A and B funded) Digital Health and D2C startups can quickly filter high-growth companies by filtering for a score greater than 3 and by searching for companies with a growth trend YOY. This would show all companies that meet their needs, despite these opportunities operating across different businesses and sub-industries.

  3. Pipeline Tracking

  4. The Synaptic Growth Index serves as a practical tool to  compare and rank companies in your pipeline regardless of industries and locations. By looking at the Synaptic Growth Index score and the change in the score over the last few months, investors can quickly assign priorities to interesting companies.

  5. Growth benchmarking

  6. The growth index enables investors to evaluate and compare companies' growth performance by applying filters like location, industry, funding stage, and funding amount. Investors can determine the market position of a company within a group based on its growth score.


    Using Stripe as an example here, compared to other US-based financial companies, Stripe has a growth score of 0.5, ranking them in the top 79th percentile of a cohort consisting of 653 companies.

  7. Portfolio Monitoring

  8. A quick look at the Synaptic Growth Index can provide a snapshot of how well portfolio companies are performing. For example, from the below assortment of portfolio companies, one can easily bucket companies into rapid growth, fast growth and moderate growth.


  9. Competitive Benchmarking

  10. As discussed in Section 2, the growth index provides a quick barometer for comparing competitors and understanding relative performance on the surface level before pursuing more information about a potential investment.


Conclusion

As the startup ecosystem continues to thrive, investors need a reliable method to gauge the growth momentum of companies. The Synaptic Growth Index serves as a useful measure by combining disparate data signals into a single metric while addressing seasonal fluctuations and differences in scale, industry, timeline and other factors.


To learn more about the Synaptic Growth Index and its applications on our alternative data and intelligence platform, book a demo today!