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It’s because of this power law: If a company has a 1 percent chance of being a hundred-billion-dollar company, then it’s worth about a billion dollars Really,
by georgecmu 14y ago
It’s because of this power law: If a company has a 1 percent chance of being a hundred-billion-dollar company, then it’s worth about a billion dollars
Really, is this a power law? Looks to me like a simplistic application of expected value.
- habosa 14y agoAlso nobody really has even a 1% chance at becoming a 100B company. There have been very few of those in human history, the odds are << 1% even for a top YC company.
- earbitscom 14y agoYou're forgetting that they are talking about the companies getting $1B valuations, not all startups. If you line up 100 companies that are Instagrams, Pinterests, Facebooks (when it was valued at $1B), etc, one of them getting to $100B can absolutely be a 1% chance.
- deleted 14y ago[deleted]
- nineteenturtles 14y agoThe power law part is why the contribution of the other 99 percent of outcomes to the expected value is close to 0. If, for example, the distribution of outcomes was uniform between 0 and 100 billion, the startup would be worth 50 billion. Because the distribution roughly follows a power law, 1 billion is a better estimate.
- paul 14y agoI was explaining both the power law distribution and expected value, and somehow that all got mushed together into one quote, incorrectly unfortunately.
- georgecmu 14y agoYep, a classic case of broken telephone -- thanks for the clarification.