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Startups are Risk Bundles
- runholm 11y agoAll of this is very well known and written much about in books, blogs, talks, etc. already...
- angelbob 11y agoI hadn't seen this put this way. What book would you recommend to get this kind of insight?
- elmar 11y agoA similar approach http://blog.gust.com/valuation-part-i-peeling-the-onion-or-how-top-investors-value-the-startups-they-invest-in/ http://blog.gust.com/valuation-part-i-peeling-the-onion-or-h...
- JumpCrisscross 11y agoIt's the option approach to equity valuation, which sees equity as a call option on a firm's assets. The strike is the firm's liabilities.
- ares2012 11y agoIf we are only ever allowed to talk about something once, then the world would be a pretty quiet place.
- masonhipp 11y ago"Valuations are based on what the company might accomplish (potential energy), not what it's actually accomplishing (kinetic energy)"... I'm not exactly sure why but for some reason this metaphor irks me. Just seems like a stretch, I'd probably be happier leaving the actual physics terms out of a statistics/financial discussion.
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- reviseddamage 11y agowe're used to a lot, a few more is ok. Burn rate, churn, runway, incubator, cottage, organic, stale, etc
- arohner 11y agomomentum. Fuel in the tank. viral. exponential. phase shift. trajectory. lasing. More heat than light.
- reviseddamage 11y agoviral is the real good one.
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- wslh 11y agoObviously, the number of existing startups matching all those restrictions tend to 0 (zero), mainly when you apply the "hundreds of millions rule". Everybody will obviously fund any company that matches those restrictions. It can be seen as a tautology.
- tryitnow 11y agoFor a more formal treatment of using probabilities to estimate valuations read Douglas Hubbard's How to Measure Anything. It's an eye-opening approach to thinking about things that are hard to measure (like startup valuations). Hubbard uses elements of information theory to help structure measurement problems. His key insight is that it's worth paying to reduce uncertainty. Most people know this intuitively but resist actually putting numbers to the idea. Staged funding rounds are a way to reduce uncertainty.
- levemi 11y ago> Will the team be able to find product-market fit? (What if the CEO is fixated on a specific product idea and wants to build it without getting feedback from potential users?) If finding product-market fit were only as simple as just getting feedback from potential users. In any case this should probably be the first item in the list. If you have a good product market fit then it will likely solve all these other problems.
- anonbanker 11y agoafter watching "The Big Short", and understanding that a CDO is essentially a risk bundle, this made things way more terrifying to me.