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Meet Visible Alpha, The Startup Five Top Investment Banks Hope Will Save Sell-Side Research

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This article is more than 8 years old.

Scott Rosen has spent the last three years quietly working on one of the trickiest problems for investment banks--how to make sell-side research more useful. And with the support of five of the leading investment banks, his startup, Visible Alpha, just might be able to pull it off.

The problems are well-known: companies have too many analysts covering them, until they don't. Because sell-side analysts depend on access, their work can be distrusted as always a "great quarter." And just a couple analysts' mistakes can dramatically shift consensus for a company's results.

Visible Alpha, which launched out of stealth Thursday, has an ambitious plan to tackle all those issues head-on. Rosen and his team have built a platform that takes in participating banks' research as it's published. The goal is context, so each report's modeling gets broken down into a taxonomy of tables, logic and dates before a Visible Alpha analysts gives it a human look. A revenue estimate, for example, can be broken down into each assumption that led to its calculation. The user can compare those assumptions--maybe iPhone unit sales in Asia--to those of the analyst's peers, and even swap in a preferred one to see how that bank's estimate would then change.

"What clients really want to know is, what are your underlying assumptions about this company, and how will it perform," says Rosen, speaking to press about his startup for the first time. "And with huge amounts of content, it's hard to make sense of it all."

Banks have tried a version of this idea before--but it was always proprietary and just for the bank. But what investors really want, Rosen argues, is the chance to compare analysts from one bank to the next across the same financial metrics. "You can have a better conversation with analysts when you provide the data at a more granular level," Rosen says. "Where am I different? If I think a company will bomb, am I alone in the wilderness?"

For Visible Alpha to work, it needs banks to contribute all that data. That's where Rosen has what may prove his secret weapon or the ingredients for his startup's frustration down the road. A consortium of five banks are founding backers of the startup: Bank of America Merrill Lynch, Citi, Jefferies, Morgan Stanley and UBS, seeding Visible Alpha with a combined $30 million and access to their research.

"We're fairly excited about it because there hasn't really been innovation in the research dissemination space for a number of years," says Gavin Skinner, COO of global research at Citi. While large clients of banks like Citi have their own teams crunching the numbers from research reports manually, Skinner says that demand for such a product is high among institutional clients. "Large institutions may have the budget internally to do this type of analysis, but they are few and far between," he adds. "We can do it cheaper."

If this bank consortium sounds familiar, it's because banks tried to do this before. JPMorgan Chase and Goldman Sachs led a group back in 2000 to launch TheMarkets.com with a similar goal. But TheMarkets.com ultimately sold to rival Capital IQ for $300 million in 2010, itself a unit of Standard & Poor's and a competitor of Bloomberg and its terminal data, as well as consensus publishers like FactSet. TheMarkets had gotten sidetracked by other projects, Rosen says.

The consortium lead should know. He spent three years at TheMarkets.com as an entrepreneur in residence until its sale, after years as an executive at Thomson Financial and I/B/E/S. According to Rosen, the banks never really lost interest--and now they're trying again.

For the banks, working with Visible Alpha can improve the dialog between the sell-side and the buy-side, says Barry Hurewitz, COO of investment research at UBS. Banks spend hundreds of millions on their sell-side research, so the chance to distribute or market it better is worth taking a chance with a few million on this type of venture.

Others are approaching the problem in different ways. At Estimize, Leigh Drogen has aimed to improve data through crowd-sourcing, but only focuses on top-line numbers like revenue and earnings per share. "Visible Alpha is trying to do the nitty-gritty hard stuff with the data that's harder to get," Drogen says. "It's not easy to put together a consortium to hand over their data for that."

But keeping the banks in line for the long haul could prove a major challenge. Hurewitz at UBS also worked with Visible Alpha at his previous company, Morgan Stanley. "We saw a client need and none of us could do this on our own," Hurewitz says. "Don't misperceive that we're all friendly buddies here. Any smidgeon of market share, I will fight for."

For Visible Alpha to succeed, that fighting will have to remain outside the consortium's walls. In the meantime, it's focused on improving its still bare-bones interface and staffing up to break down more reports from more banks as they come on board. The startup has 50 employees and is hiring fast, mostly in India. The plan is to offer access as a subscription-based service, with bank clients potentially also getting some access through existing accounts. Visible Alpha will sell to buy-side analysts only to start, then may open up to hedge funds down the road.

"For people that don't like sell-side research, if they don't like it because they can't see the assumptions and logic behind it, this will shine a light," says Rosen. "And the banks are saying, yes, we will show our work."

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