Re:Picking Winners: A Framework for Venture Capital Investment
by bambax on Monday June 26, 2017 @07:43AM
(#14635960)
With zero information, "picking winners" is like buying lottery tickets.
It's obvious that you can win at lottery if the cost of buying all the tickets is less than the total payout. It's usually not.
In the case of startups, it may still be the case. For this study they examined 24,000 companies over 16 years (1500 companies per year). 24k companies x $10k = "only" $240 millions (or, over 16 years, $15 millions / year on average).
So, if one invested $10k in each of these companies, as early as possible (to get the maximum equity in exchange for these $10k) then they would probably have come out ahead (hard to verify as I couldn't find the total exits in $$ in the study).
I think this is fundamentally, and ultimately, YC's business model: root out the obvious hacks and cracks, and accept everyone else.
It's obvious that you can win at lottery if the cost of buying all the tickets is less than the total payout. It's usually not.
In the case of startups, it may still be the case. For this study they examined 24,000 companies over 16 years (1500 companies per year). 24k companies x $10k = "only" $240 millions (or, over 16 years, $15 millions / year on average).
So, if one invested $10k in each of these companies, as early as possible (to get the maximum equity in exchange for these $10k) then they would probably have come out ahead (hard to verify as I couldn't find the total exits in $$ in the study).
I think this is fundamentally, and ultimately, YC's business model: root out the obvious hacks and cracks, and accept everyone else.