Florida Investment Network


Recent Blogs


Pitching Help Desk


Testimonials

"Thank you very much for the extra input with my Restaurant/Nightclub proposal. I already have a couple investors who are requesting more info, and that's less than 24hrs after submitting the proposal to you. I am very pleased."
Rodrick Agcaoili


 BLOG >> Recent

Predicting a Unicorn Startup [Startups
Posted on March 23, 2016 @ 05:40:00 AM by Paul Meagher

Y Combinator is currently the top business incubator in the world so it is a worthwhile exercise to study the W2016 round of startups featured at their recent Demo Day launch event.

Tech Crunch is covering the Y Combinator Demo Day launch event and you can read about the 60 startups that presented at Demo Day 1. As you read through them you might ask yourself which of these companies will be the most successful? You might also ask yourself if there is a "Unicorn Startup" in this batch? In Silicon Valley, a company the size of Google, Facebook, Twitter, LinkedIn and so on is called a "Unicorn Startup" or simply a "Unicorn" - a mythical and rare creature mentioned in this interview. Silicon Valley investors are often hoping to find the next Unicorn. A Unicorn can be defined as a company with the potential to achieve a 1 billion dollar valuation in the next 6 years. Which company in this batch might be the next Unicorn?

In a recent series of blogs (see Financial Forecasting, Updating Forecasts, Evaluating Forecasts) I discussed Philip Tetlock and Dan Gardner's book Superforecasting: The Art & Science of Prediction (2015). One of the take home messages from that book is that if you want to become a better forecaster you need to make testable forecasts and then evaluate how well those forecasts fare. The quadratic scoring technique is a simple and flexible technique that can be used to evaluate forecasts accuracy and to guide you to becoming a better forecaster.

The Y Combinator Demo Day events provide an ongoing opportunity to hone your forecasting skills in the domain of startup investing. Here is how it might work. Pick one or more startups from this batch that might be a Unicorn startup. Now assign a probability score to your forecast. Evaluate that forecast when the next Y Combinator Demo Day event happens and make new Unicorn forecasts and adjust your previous Unicorn forecasts as necessary. Do this for awhile and you will improve your knowledge of and skill in Unicorn forecasting.

I think there may be a Unicorn hiding in this batch of startups. To make a defensible prediction I would have to read more about these companies but my gut suggests that Magic Instruments might be a possible Unicorn. Magic Instruments is redesigning the guitar interface to make it easier to learn and use on an ongoing basis.

Magic Instruments is charging a reasonable price for the guitar ($299). They have a revenue model that also includes ongoing fees from customers ($6 monthly subscription service for chords and lyrics of popular songs). The trade name, Magic Instruments, is very fitting. Finally, the success of Guitar Hero established that the market for electronic guitars and software can reach up to 6 billion dollars. On the downside, it is one thing to claim to be able to redesign the guitar interface, it is another to actually pull it off. There are competition and patenting issues that are unknowns. I don't know anything about the management and what the financial situation of the company is. Really not the best situation to make a prediction but for the purposes of this blog I'll go with my gut and test how good that method is.

So what probability should I assign to Magic Instruments being a Unicorn? If I think they might be a Unicorn then from a semantics point of view the starting point for my assignment should be above 50% to make it a non-trivial prediction that can be evaluated. I'm not that confident in this forecast so I'll say it is 60% likely to occur (i.e., p(MI = U) = 0.6). I won't say I'm 56% confident because claiming such accuracy would be misleading. I'm implicitly claiming accuracy to within 10 percentage points at this stage.

Predicting Unicorns from Y Combinator Demo Day events is a fun pastime that could also be a teachable moment for would be private investors on picking the next big thing.

At last count, VentureBeat listed 229 unicorn startups with a disproportionately large number (101) located in California (image below from VentureBeat article). A non-trivial portion of that number were incubated by Y Combinator so this method of predicting unicorns has a decent chance of succeeding.

Permalink 

 Archive 
 

Archive


 November 2023 [1]
 June 2023 [1]
 May 2023 [1]
 April 2023 [1]
 March 2023 [6]
 February 2023 [1]
 November 2022 [2]
 October 2022 [2]
 August 2022 [2]
 May 2022 [2]
 April 2022 [4]
 March 2022 [1]
 February 2022 [1]
 January 2022 [2]
 December 2021 [1]
 November 2021 [2]
 October 2021 [1]
 July 2021 [1]
 June 2021 [1]
 May 2021 [3]
 April 2021 [3]
 March 2021 [4]
 February 2021 [1]
 January 2021 [1]
 December 2020 [2]
 November 2020 [1]
 August 2020 [1]
 June 2020 [4]
 May 2020 [1]
 April 2020 [2]
 March 2020 [2]
 February 2020 [1]
 January 2020 [2]
 December 2019 [1]
 November 2019 [2]
 October 2019 [2]
 September 2019 [1]
 July 2019 [1]
 June 2019 [2]
 May 2019 [3]
 April 2019 [5]
 March 2019 [4]
 February 2019 [3]
 January 2019 [3]
 December 2018 [4]
 November 2018 [2]
 September 2018 [2]
 August 2018 [1]
 July 2018 [1]
 June 2018 [1]
 May 2018 [5]
 April 2018 [4]
 March 2018 [2]
 February 2018 [4]
 January 2018 [4]
 December 2017 [2]
 November 2017 [6]
 October 2017 [6]
 September 2017 [6]
 August 2017 [2]
 July 2017 [2]
 June 2017 [5]
 May 2017 [7]
 April 2017 [6]
 March 2017 [8]
 February 2017 [7]
 January 2017 [9]
 December 2016 [7]
 November 2016 [7]
 October 2016 [5]
 September 2016 [5]
 August 2016 [4]
 July 2016 [6]
 June 2016 [5]
 May 2016 [10]
 April 2016 [12]
 March 2016 [10]
 February 2016 [11]
 January 2016 [12]
 December 2015 [6]
 November 2015 [8]
 October 2015 [12]
 September 2015 [10]
 August 2015 [14]
 July 2015 [9]
 June 2015 [9]
 May 2015 [10]
 April 2015 [9]
 March 2015 [8]
 February 2015 [8]
 January 2015 [5]
 December 2014 [11]
 November 2014 [10]
 October 2014 [10]
 September 2014 [8]
 August 2014 [7]
 July 2014 [5]
 June 2014 [7]
 May 2014 [6]
 April 2014 [3]
 March 2014 [8]
 February 2014 [6]
 January 2014 [5]
 December 2013 [5]
 November 2013 [3]
 October 2013 [4]
 September 2013 [11]
 August 2013 [4]
 July 2013 [8]
 June 2013 [10]
 May 2013 [14]
 April 2013 [12]
 March 2013 [11]
 February 2013 [19]
 January 2013 [20]
 December 2012 [5]
 November 2012 [1]
 October 2012 [3]
 September 2012 [1]
 August 2012 [1]
 July 2012 [1]
 June 2012 [2]


Categories


 Agriculture [77]
 Bayesian Inference [14]
 Books [18]
 Business Models [24]
 Causal Inference [2]
 Creativity [7]
 Decision Making [17]
 Decision Trees [8]
 Definitions [1]
 Design [38]
 Eco-Green [4]
 Economics [14]
 Education [10]
 Energy [0]
 Entrepreneurship [74]
 Events [7]
 Farming [21]
 Finance [30]
 Future [15]
 Growth [19]
 Investing [25]
 Lean Startup [10]
 Leisure [5]
 Lens Model [9]
 Making [1]
 Management [12]
 Motivation [3]
 Nature [22]
 Patents & Trademarks [1]
 Permaculture [36]
 Psychology [2]
 Real Estate [5]
 Robots [1]
 Selling [12]
 Site News [17]
 Startups [12]
 Statistics [3]
 Systems Thinking [3]
 Trends [11]
 Useful Links [3]
 Valuation [1]
 Venture Capital [5]
 Video [2]
 Writing [2]