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February 18, 2008

YouNoodle — Venture-Capital-in-a-Box


"Is your start-up worthy of investment?" is how Matt Richtel's article in today's New York Times begins.

Got my attention, fer shur.

Long story short: YouNoodle has a black box (as opposed to the black ball [top] I've been using, with not a whole lot of success when it comes to the money —not that it's about the money, but still...) that predicts how a start-up will fare.

It's worked pretty well for them so far, as they've raised real cash from such backers as Paypal co-founders Max Levchin and Peter Thiel, and the venture capital firm Founders Fund.

Here's the Times piece.

    A Start-Up Says It Can Predict Others’ Fate

    Is your start-up worthy of investment? Ask the venture investor in a box.

    Two former Oxford University students are getting attention (and seed money) in Silicon Valley for developing new technology that automates aspects of the venture capital decision-making process.

    Kirill Makharinsky, 21, and Bob Goodson, 27, call their software a “start-up predictor,” and they say their company, YouNoodle.com, might give an edge to venture capitalists and other investors trying to decide whether to sink money into an early-stage company.

    “We don’t want to replace investors,” Mr. Goodson said. “We simply believe that industries of comparable size have utilized artificial intelligence to inform decision-making.”

    “Give us some information, and we’ll give you some idea of what the company will be worth in five years,” he said.

    Starting Monday, the company is emerging from a private test and is opening up parts of its Web site and services to the public.

    The idea of a start-up predictor has drawn skepticism. Some venture capitalists say that the idea of using formulas or historical data from past deals to predict how other start-ups will do in the future has been tried many times in vain.

    Paul S. Kedrosky, a venture capitalist and the author of the Infectious Greed blog, said that his industry was indeed inefficient at picking winners; typically, 90 percent of venture investments are not home runs. But he does not particularly trust a company that professes to be able to do better than venture capitalists.

    “If their tool did such a good job, they’d raise a fund themselves and beat the tar out of us,” Mr. Kedrosky said. “It’s hard to imagine what they’re mathematical combination of factors is.”

    On that point, the founders of YouNoodle.com are not forthcoming. They say their algorithm uses sophisticated modeling pertaining to how social capital and networks can affect an organization’s performance.

    They also say that they are focusing in general on assessing the experiences and social and business contacts of entrepreneurs who start a company, and on how the entrepreneurs within that company might fit with one another. They will not disclose precisely what factors they use to predict a start-up’s success, or how their algorithm processes those factors.

    They certainly have their own well-heeled network. YouNoodle’s financial backers include Paypal co-founders Max Levchin and Peter Thiel, and the Founders Fund, a venture capital firm. YouNoodle has not disclosed the amount of its seed financing.

    The company is also is trying to build a network of early-stage companies, and to provide tools that can be used for business plan competitions, businesses school classes and other emerging entrepreneurial ventures. It provides those tools free, but in so doing the users provide data about their new ventures that YouNoodle uses to refine its predictor algorithm.

    The company plans to give away a simple version of its predictor but will charge investors who want the newer and more powerful version of the software.

    So the question arises: Has YouNoodle used the predictor to determine if it will itself succeed?

    “So far, we haven’t run ourselves through it,” Mr. Goodson said, adding that the results could prove baffling. “If it says we’ll fail, and it’s right, that’s something of a paradox.”

February 18, 2008 at 04:01 PM | Permalink


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Posted by: Reza | Feb 19, 2008 5:52:03 PM

- “So far, we haven’t run ourselves through it,” Mr. Goodson said, adding that the results could prove baffling. “If it says we’ll fail, and it’s right, that’s something of a paradox.”

Or alternatively, that the algorithm spat out the right result by accident. The thing this quote seems to miss is that, even if the tool works perfectly, it measures the success of the *company* (or at least that's what the article implies) not what it is producing. So the tool could be great, but the management of the company could be terrible.

Posted by: Graeme | Feb 19, 2008 1:54:41 AM

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