YouNoodle, a company started in March 2007 by two Oxford University graduates – Kirill Makharinsky and Bob Goodson – hopes to automate part of the vetting process in startups, by looking at the entrepreneur and the team. It's an ambitous proposition, but worth pursuing. Here's why.
It’s been more than a dozen years since the commercialization of the
Internet. At the start, documents were submitted and simple directories
were created to organize and help us find information. Today, most – if
not all, for many – of our communications, entertainment and
information consumption is done online. It’s not surprising, therefore,
that secret sauces are being cooked up to help automate the
relevance-ranking, decision-making process for just about anything,
including venture investing.
YouNoodle’s Makharinsky tells me that the company’s predictive tool to spot startups to invest in will be out in a couple weeks. The main factors dropped into the mathematical model are information about the entrepreneur and team. “We look at what a person’s done before, who he’s worked for… And have teams worked together (in the past)," he said, in an interview with me, recently.
If any factor in determining whether a startup is worth investing in, the entrepreneur is probably the most important.
But there are many skeptics, including myself, who feel that applying algorithms to a process that’s far more qualitative than quantitative is a futile exercise. Venture capitalist Paul Kedrosky, in a NYTimes article, says it this way: “If their tool did such a good job, they’d raise a fund themselves and beat the tar out of us… It’s hard to imagine what their mathematical combination of factors is.”
It’s hard to disagree with Kedrosky. At Vator, we have contemplated creating a predictive model to analyze our startups. But, like Kedrosky, I thought if we could create such a predictive model, then we should just become a venture fund. I have also covered the public markets as a journalist for long enough to know that even the most esteemed mathematical models ultimately fail. Long-Term Capital management is the best example.
It’s not to say that I don’t believe such a tool is worth creating. I do.
As I said above, there are mathematical models that are being applied to just about everything – even to find our significant other. Nothing is perfect. Google doesn’t always provide the best result. Collaborative filtering tools don’t always serve up the best book or movie for me. YouNoodle’s information about the startup may not be entirely perfect or complete. But it may be additive.
(Editor's note: Peter Thiel, an angel investor in Vator, is also an investor in YouNoodle.)