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An Algorithm to Pick Startup Winners - Technology Review


Stashed in: Venture Capital!, Silicon Valley!, Moneyball, VC, Wafflebot!, MIT TR

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Does Moneyball work for startups?

I believe in Correlation Ventures, but Pando Daily is skeptical.

Joyce affectionately refers to Correlation Ventures as Wafflebot and walks around our office saying, "I love you, Wafflebot!"

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Seriously, this is new, smart, and unique:

To run its model, Correlation Ventures, which is based in San Diego and Palo Alto, California, asks startups to submit five basic planning, financial, and legal documents. It enters these into a program similar in function to credit rating software.

A top-ranked score leads to a 30-minute interview with both the startup CEO and the outside venture firm leading the investment, plus a quick legal review and background check. As a co-investor, Correlation Ventures always relies on some vetting by the primary investor.

And yes, it's Moneyballesque:

To explain his project, Coats cites Moneyball, the book and movie about how Oakland Athletics general manager Billy Beane rejected the conventional wisdom on evaluating baseball players and built a winning franchise by letting a computer tease out variables that others overlooked. He believes the averages will work out. "We're not claiming to have a magic crystal ball," he says. "We're tilting the odds a little in our favor with each investment."

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