
Startups are Risk Bundles - lpolovets
http://codingvc.com/startups-are-risk-bundles/
======
tryitnow
For 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.

------
masonhipp
"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.

~~~
reviseddamage
we're used to a lot, a few more is ok.

Burn rate, churn, runway, incubator, cottage, organic, stale, etc

~~~
arohner
momentum. Fuel in the tank. viral. exponential. phase shift. trajectory.
lasing. More heat than light.

~~~
reviseddamage
viral is the real good one.

------
wslh
Obviously, 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.

------
levemi
> 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
after watching "The Big Short", and understanding that a CDO is essentially a
risk bundle, this made things way more terrifying to me.

------
runholm
All of this is very well known and written much about in books, blogs, talks,
etc. already...

~~~
angelbob
I hadn't seen this put this way. What book would you recommend to get this
kind of insight?

~~~
elmar
A similar approach

[http://blog.gust.com/valuation-part-i-peeling-the-onion-
or-h...](http://blog.gust.com/valuation-part-i-peeling-the-onion-or-how-top-
investors-value-the-startups-they-invest-in/)

