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The analysis is only looking at whether there's a strong negative correlation between initial funding and startup success, using exit valuation as a measure, as
by asanwal 13y ago
The analysis is only looking at whether there's a strong negative correlation between initial funding and startup success, using exit valuation as a measure, as this was Fred Wilson's assertion.
Of course, this is not meant to be predictive but rather meant to dispel the notion that a strong negative correlation exists between these two variables.
- j_baker 13y agoI don't see where Fred says that exit valuation is a metric. His blog post on the subject never includes the phrase "exit valuation". http://www.avc.com/a_vc/2013/09/maximizing-runway-can-minimize-success.html http://www.avc.com/a_vc/2013/09/maximizing-runway-can-minimi...
- asanwal 13y agoHe is a VC, and a good one, so success = exit valuation by definition. This is implicit when a VC is talking about success. Fred talks about he defines success here - http://www.avc.com/a_vc/2010/06/how-we-measure-success.html http://www.avc.com/a_vc/2010/06/how-we-measure-success.html "We are financial investors and we do want to see our portfolio companies become valuable."
- loceng 13y agoNo, it really doesn't imply that...
- asanwal 13y agoSorry, but I don't understand this comment. If exit size is not one of the primary metrics VCs look at and how they define success, I'm at a loss for what would be. More specifically, how do you think USV and Fred define success? Fred says that financial returns (hence exits) are important on his own btw [1] [1] http://www.avc.com/a_vc/2010/06/how-we-measure-success.html http://www.avc.com/a_vc/2010/06/how-we-measure-success.html
- loceng 13y agoExit size doesn't matter on its own - you have to take into account how much equity you own. 40% of $100 million exit is better than 10% of $300 million - as an example. I would describe the first scenario as more successful than the second.
- legutierr 13y agoIf you paid $50 million for the 40% and $5 million for the 10%, I think you would be hard-pressed to describe the 40% investment as more successful.
- loceng 13y agoI am taking this from the founder's point of view, where no money is paid to buy the equity. You highlight the good point that it depends on the context and point of view - who's success is being talked about.
- loceng 13y agoTo further my other comment - I'm a regular commenter at AVC.com and Fred generally talks from the perspective of what's best for the founder, for the entrepreneur. This is why I am making these insights.
- wheaties 13y agoYou're making strong assumptions about his methodology vs a guy that is only looking at public ally available exits. I would be remiss to say that his data most definitely supports his position.
- asanwal 13y agoTo clarify, Fred's post has no data - just a statement of an inverse correlation between funding and success.
- x0x0 13y agoand since it does nothing like dispel the notion (see, again, omitted variables)... what exactly does this contribute again?
- pbreit 13y agoFirst, he doesn't say "strong" correlation. Second, your analysis doesn't work without including zeroes. Pretend all the failures raised a lot of money. Your line would point down. Your analysis was marginal and you're not taking the feedback very well.
- asanwal 13y agoThx for the comment. We are updating the brief with all the zeros as we have the data. You are right that the line would point down if all failures raised a lot of money at the seed/Series A stage, but that's not the case. This intuitively makes sense as only a small select group of companies/founders can raise large initial rounds (serial entrepreneur, amazing traction, etc) and most will raise smaller sums. But thx for comment. Update with zeros coming soon.