In February a well backed startup called YouNoodle said that they were developing a product that would accurately predict the future success of startups based on an analysis of the business and the founding team. Much like a credit rating tells creditors how likely an entity is to pay off debt, YouNoodle aimed to tell investors how likely they would be to see a return on their investment, and would even go so far as to estimate the exact valuation of a startup a few years into the future.
We were skeptical, to say the least. Particularly because the product was being announced while still in development.
Now YouNoodle is preparing to launch the predictor tool (sign up to be notified here). CEO Bob Goodson let me test the service out last week and shared some of the early results with me.
I’m still skeptical, but I love the valuation prediction for TechCrunch ($87.4 million), and I have to admit that some of the predictions are within a stones throw of accurate. And if people can be convinced that this is a useful way of understanding if a startup team has a chance of succeeding, it could become part of Silicon Valley culture.
The Prediction Tool
YouNoodle collects a lot of data on startups to make the prediction - the questionnaire takes a good half hour to properly complete. YouNoodle aims to make the prediction right before the first round of funding for a company. So one way to test it is to enter information about a more mature startup that was true prior to funding, and see how well it predicts the actual results.
The key factors in determining likelihood of success, says Goodson, are the team, financial factors, the concept and advisors. Details on the education, entrepreneurial experience and other information founder and key employee. The tool wants to know everything. For the founders, their age, education, previous startups (and how they did), and their long term relationship to the other founders. For the concept, YouNoodle gathers information on the business idea (probably extracting keywords for analysis), where it’s located, and lots of other data.
YouNoodle then churns all that data and assigns the company an index score from 1-1000 as well as a valuation estimate three years down the road. YouNoodle has tested and fine tuned their algorithm with 3,000 startups, Goodson says, and the results are “highly statistically accurate.”
As I said, TechCrunch’s valuation prediction based on 2005 information is just over $87 million. I won’t comment on that (woohoo!), but here are some other predictions, all made with data on the startups that was true prior to any funding:
Slide: $124 million (actual: $550m)
RockYou: $71 million (actual: $250m)
Mahalo: $118 million
Powerset: $104 million (actual: $100m)
Cuil: $95 million
Twitter: $110 million
Friendfeed: $86 million
Given that the information used to make the predictions was limited to that available prior to any funding of these companies, the data is both interesting and accurate enough to be useful. Slide and RockYou, for example, aren’t accurate, but the algorithm did predict success and it also got the relative valuations almost perfectly correct. Powerset was accurately predicted, and we’ll have to wait and see how Cuil and Mahalo do. Twitter’s valuation is probably close to accurate.
More examples: YouNoodle predicted that Google would be worth just $88 million three years after it was founded, which is lower than their private valuation at the time but now way off. Facebook’s valuation was predicted at $111 million, which is way off of its actual valuation. But the key is that YouNoodle would have predicted huge successes for all of these companies based on the exceptional teams put in place at the very early stages.
The average three year predicted valuation for student startups from top ten universities is about $360,000.
So the big question is, how does YouNoodle predict it will do based on its own algorithm? Goodson says it thinks YouNoodle will be worth $96 million in 2010.
How YouNoodle May Be Used
Goodson says he will provide the prediction algorithm for free to startups, even giving them a “certificate” showing their index score and predicted valuation (the one for TechCrunch is the top image above). If third parties want official access to the certificate they’ll be asked to pay (just as creditors are asked to pay for official credit reports). For now the service is being provided completely for free.
While the algorithm seems to do a good job of identifying teams with a high likelihood of success, it’s not clear to me that it does a better job than an experienced VC would be able to do on their own. YouNoodle is also basing predictions on historical data, and in a rapidly changing world that is consistently disrupted by new technologies, those predictions are very hard to make. Humans who are on top of recent developments can make subjective decisions that are far more likely to be accurate than an algorithm.
But YouNoodle is also dispassionate, and can therefore make decisions outside of the emotional world of startup investing. Venture capitalists are, despite their appearance, fairly risk averse people. If YouNoodle backs up their instinctive reaction to a startup they may be more likely to invest. And they may also walk away from an investment they like if YouNoodle says it’s destined to fail.
At the very least YouNoodle is going to add a fascinating layer to the conversation. The company has raised one round of financing (they aren’t disclosing the amount raised) from Max Levchin, Peter Thiel and The Founders Fund. In addition to Goodson, key employees include Kirill Makharinsky and Rebeca Hwang.
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I am sure they TRAINED their neural network (or whatever they use) with the data from TechCrunch, Powerset etc.
So it is no surprise that THIS data is accurate when you enter it as a test!
Did you try the tool on YouNoodle itself? How does it rate itself?
meh
There dreaming!
Are there plans to use this tool when deciding on Finalists for the Techcrunch 50?
Would be interesting to compare their scores.
But the real test of a Startup in today’s market - is the ability to get acquired by a powerhouse that will incorporate it.
Who could have predicted that Omnisio would get acquired by Google within MONTHS of debuting?
Mike did you test only start ups that succeeded? How did their results compare to those startups that failed/died?
mahalo 118 milllion haaaaaaaaaaaaaaaaaaaa
M - we studied data on thousands of startups in building our models; and we can confirm that the data on TechCrunch, Powerset and the other examples above were not included in this sample set.
where did you get the data?
how many statistician do you have ?
We collected data from publicly available data sources, partnerships with investors, service providers and others; and primary interviews with those who had detailed information on the first steps of past companies.
Hit me back if you’re considering of getting a brandable seven-lettered domain name.
They should add a feature that allows a (BUY NOW!) button next to your valuation. Make an affiliate network with a 5% commission. Imagine the insanity people would go through trying to earn a 5% of of the (YouNoodle) valuation. Obviously younoodle will be a good tool for investors looking for opportunities. I can’t wait to see my numbers
awesome
the idea is cool, we’ll see what happens to it in practice. it will be interesting to see if it can become a tool leveraged in venture/finance. if these guys can pull off even a 1% gain in information, that could mean massive value creation in those spaces. gotta hand it to these guys for trying something that’s pretty ambitious. it’s definitely a high variance play.
the big looming questions are 1) are they good predictors? 2) are they able to make predictions better than business analysts, venture capitalists, bankers, etc? they seem to be on the way to #1, but can they get to #2? either way, i am pretty excited to find out.
and yeah, while they probably ‘trained’ on some of the data points listed in the article, there are ways to avoid over-fitting with cross-validation and so forth such that it is not artificially producing answers that are ‘too correct’. these guys are smart, so i am sure they mitigated these issues already.
Tech Crunch valuation at $87.4MM = immediate loss of ALL credibility for YouNoodle. Period.
if they don’t do that, who would contribute data? the inflation rate of these valuation is at 15% / month i guess.
if they mark TC for 2 mil, twitter for 10 mil, no one would give them free data.
the first rule of con ,”give ppl what they want, they will pay whatever to get it”
wow, that read like an advertisment.
I am interested in trying YouNoodle out though.
a) this tool is awful
b) if they are not making a consumer-focused product (it’s an investor-focused product) why did they pick such a stupid, childish name?
actually, its a wantrepreneur focused product. Real VC’s and real companies with a legit shot at VC money wont use it.
I will use it, though.
how much does it price itself?
Sounds like a fun concept
I think this may fly as people will use it in their presentations if they get a good valuation….
Ofcourse, trust will be a big factor in this.
Does the survey take market factors into account that could affect even a company that looks bound for success? And as others have asked, what does it predict for failed startups?
I personally think this whle prediction thing is all a waste of time. how can someone sit down and say that they can predict the future of a website on what exact grounds.
The whole idea is like that of a psychic, but based on science.
I am skeptical
I’m always vary of people who sell (for $29.99) guaranteed methods of making millions.
If younoodle is even slightly accurate, they should start their own venture fund, rather than sell the software.
The whole credit rating analogy is seriously flawed. Credit ratings work because large numbers of people (millions) smooth out the outliers, whereas a VC only has a portfolio of tens/hundreds.
“If younoodle is even slightly accurate, they should start their own venture fund, rather than sell the software.”
best comment so far…
yup.
I was thinking of the same thing.
It is like an online marketer preaching to others how to make $100,000 per week. And when someone asked him, why is he preaching for $40- $100 when he can earn $100,000 per week, the response: Life is not about money, I just love to teach others.
Start their own venture fund. Seems like the smart thing to do. however a) this has not been time tested.. so they are unlikely to raise too much capital to invest
b)It’s easier to sell wantrepreneurs then it is institutional investors or other sources of funding for their firm
c)their concerns may be going beyond money issues as the more people are using this tool, assuming it works well, then more companies can be funded leading to job creation leading to lessening in poverty, an issue the founders may care to alleviate.
d)What they are doing now and revealing to the public could be a lighter version of what they themselves use. It’s like giving free content and then keeping the premium for either high-paying customers or themselves. In any event it builds popularity and recognition.
There are ways to get some kind of analysis out of this. There is a bigger picture being missed - but I’m going to hold on to the secret
Ok - the bubble has arrived. It is time to officially “short” all web 2.0 companies. Loren Feldman, 1938 Media
I couldn’t agree with you more!!! Duck and cover!!! This is among the worst startups ideas, and we have all heard quite a few bad ideas.
LOL! 85 million for what?
story on tc
LOL
Well, I guess I am screwed then. Hits against me: No college, Just Army. Based in New Hampshire. No team, I am currently an army of one. Put me in the deadpool now please.
Oh wait, my site isn’t called younoodle, I might just make it.
Another product still in development that’s announced early…sigh…will they not learn from Cuil? Even the TEENAGERS, normally numbskulled, are commenting on this: http://www.newsbreaktimes.com/article2
This is wrong:
“So one way to test it is to enter information about a more mature startup that was true prior to funding, and see how well it predicts the actual results”
This is not how you falsify a hypothesis. What you are doing here is showing confirmation bias (http://en.wikipedia.org/wiki/Confirmation_bias).
What we need to know is:
1) all the successes this algorithm predicts that turned out to be failures
2) all the failures this algorithm predicts that were successes
I doubt this information will be made public.
Further, these predictions are nothing unless they can tell you when a liquidity event will occur (timescale is as important to an investor). A company ‘worth’ $100m can still fail and leave its investors out of pocket if it never makes it to liquidity.
I would like to see the metrics behind Facebook’s valuation prediction. I’m sure there’s a ton of hindsight bias here as well (we know now that Thiel is a good investor, but who can predict who the next Thiel will be?).
I wonder if the numbers are all just made up by this tool. Tools can’t see in the future
For the love of god man. Rename this fricking thing if you expect to be taken seriously.
The first indication to me that you know little to nothing about startup success (at least, as it relates to marketing) is your choice of “YouNoodle” as a brand name.
Get a clue.
ahahAHahah
HAHAHAHAHA!!! They chose YouNoodle to make a statement about the fools that take this seriously. There should be a hand pointing out from the screen towards the goon that even wastes a few minutes on this site.
Straight from Dictionary.com
noo*dle (noun) 2. a fool or simpleton
Indeed , what a horrible name. Good thing a startup can become worth millions without a good brand/name.
I wonder if the questions
“What is your startup named” or “Do you own the .com domain?”
is in this questionnaire
Interesting that the service can be applied before the first round of funding, implying that the contacts/experience that investors bring do not affect valuation.
Also, has anyone checked the privacy policy? It seems that the information you have to enter would be invaluable to groups like capitaliq.com or ipeex.com - I wonder if you noodle are completely locked down from being able to use the information or sell it on.
wouldn’t it seriously (if done before any money is taken) put FB valuation very very low?
It will be fun, but a fucking waste of time in the real world. How is it going to judge concept? I will stick in a couple of buzz words like ’social networking’, ’semantic’, ‘UGC’, ‘aggregation’ and i will be minted.
its the status-quo and that’s a shame
you have to be a ‘well-connected-silcon-insider’ to be on its radar in order to be considered for valuation.
Thanks for accelerating the next tech-bubble burst
Valuation is always a toss up so why not welcome a YouNoodle valuation predictor tool? Right, because the word of the month is “FAIL”
is blodget behind this farce?
Yes, I am an angel.
As usual not much debt.. how do they do it. Well simple… data mining create a database with startups slap some data mining over it… and pray.
I personally think its garbage… and a good marketing ploy to rate arrington’s site.. at $80 Mio… At the end its vaporware.. and based on many startups during the dot com bust. Just because someone tells you what something is worth does not mean it is, simple as that.
And of course every company you entered was likely entered as the training set.
Lets face it, $84 Mio… for the garbage quality reporting… you can’t be serious. I appreciate this blog for putting my radar on new startups and reading their elevator pitch but that’s about where it stops… I’d value it at max. $5 Mio. not a dime more.. if you want more you’d actually have to do some research…
examples of garbage research… since i have been reading this
Tesla / Arrington’s web tablet (how’s that one going has it been burried yet?) and now this
(For all the naysayers) I would wait and see. Kirill and Bob are ridiculous smart analytics guys. Guaranteed they have something up their sleeves …especially if they’re backed by Thiel and FF.
This is a cool concept, but a bogus tool. There is no way to predict intangibles such as luck, natural disasters, external economic conditions, etc. What was Google’s/Yahoos valuation? Anybody who pays money for this is, sorry to say, retarded…. http://www.gothamtechminute.blogspot.com
Well this is very interesting. I guess when I put in my data it should read figures beyond comprehension.
“If third parties want official access to the certificate they’ll be asked to pay”
here’s a good idea for ya.. set up a web form that asks naive founders to enter *every last tiny detail about their company* - then flog the data to potential investors faster than you can say ‘due dilligence’
but how can we get founders to enter all that info? well noones gonna say no if you claim you can tell them what their startups gonna be worth in 3 years, surely!
as for the ‘algorithm’? i have a good algorithm - it goes ‘pick a number between 75 and 125M - unless the company name you just entered matches our master list..
anyone tried entering the same data twice, once with the name ‘Facebook’ and once as ‘Deadbook’?
I love you YouNoodle Guys, the SF scene is small, but if you just changed your name to “Start-Up Predictor” then you could go by ‘SUP?
Then, when VCs are talking about start ups, they can ask themselves: “Have you seen ‘SUP?”
I won’t bash prediction technologies (since I started one) but this sounds a bit dodgey to me. That said, I’ll still find out what it values mine at.
A fun gadget then we all go back to business….
Still have to see how accurate Younoodle can be in average. Alexa is still around even though it has major holes in its analytics model.
Original concept. Maybe then will expand it later on… Maybe turn it in to an advice tool for struggling start-ups.
Interesting concept. We have been working toward creating a similar valuation tool for all companies not just startups at http://www.venturereturns.com. We use market comparables similar to Zillow from a database of over 15,000 companies and deals.
I’m skeptical. I’d guess this was trained/tested on past startups, so of course it will produce accurate results for many of them. But new ones doing new things in the future? Not so sure.
Donnie - as well as past startups, we also include current and active startups in our sample sets, for which certain relevant outcome metrics are known. We’re also continuously collecting the latest data to take into account any shifts in trends and minimize any time-related differences.
It looks interesting. I will try Younoodle for sure.
I think a good test would be to see what youNoodle says about a company that has been sold already. I mean see if their algorithm works decently well, not if they can pull up historic company sales data.
Hi Mike, I think you miss the point.
You focus on whether YouNoodle can predict the values that have been placed on existing stars.
But surely the merit of this tool is in its ability to guide the founders, staff and supporters of new start-ups - not those that have already attracted valuations from venture capital firms and private investors.
The thing that is really intriguing is the questions that it asks.
For instance, it asks for the age of the founder and the team members and for information about the relationships between them.
It makes you wonder what bearing age plays on the success of a start-up?
It also asks about the skills that all the parties bring to the table, their experience and their connections to people who may be able to help make the start-up a success.
Yes, you get a score and valuation at the end. But is not the real benefit the ability to then respond to the outcome, for instance exploring what will happen when you add in a new skillset to your team.
What YouNoodle has emphasised is that one of the crucial factors determining whether a start-up will succeed (perhaps The crucial factor) is not actually the business concept, the idea, but the people who will make it happen.
For what it’s worth, I pushed Goodson to say what impact he hoped YouNoodle’s Startup Predictor would have: “I would like to see a situation in 10 years where we laugh about the fact that technology like ours was not used,” he told me during a pre-briefing like the one you received.
Embed YouNoodle’s technology in an investment process that is ultimately determined by an experienced and well connected investor and I think he’s on to something.
87 million huh…. seems a little short….
I would say TechCrunch should be worth a $100 million by then…
Fucking stupid. It’s a lame attempt to gather a bunch of data. Only a fool would give such detailed data to these guys.