YouNoodle

YouNoodle is a San Francisco-based company providing a networking website for small businesses. It has received particular attention for its "startup predictor", which aims to use mathematical models to predict the success of a new business based on information about its concept, finances, founders and advisers. The results include an estimate of the company's expected value after three years.

1 History and structure
2 Business networking
3 Startup predictor
- 3.1 Independent analyses
4 Future plans
5 References
6 External links

History and structure

The founders of YouNoodle are Bob Goodson and Kirill Makharinsky, both former students of the University of Oxford.^[1] Goodson had studied medieval English literature before moving from Oxford to California when Max Levchin, the co-founder of Paypal, invited him to join a start-up there.^[2]^[3] Makharinsky's degree was in applied mathematics,^[4] and he was also encouraged to pursue opportunities in the United States by Levchin.^[5] Other significant employees include Rebecca Hwang, a Stanford University doctoral student whose research is into social network theory.^[6]

The company was established in San Francisco. In the 11 months before February 2008, it worked to help universities organise competitions for business plans.^[5] Among its financial backers are Max Levchin and Paypal's other co-founder Peter Thiel, and the venture capital firm The Founders Fund in which Thiel is a partner.^[1]^[5]

Business networking

The site's provision of networking features for small businesses places it in a similar field to LinkedIn, Tradespaces and Smarta.^[7]

Startup predictor

YouNoodle's "Startup predictor", developed by Makharinsky and Hwang, uses mathematical models to predict the success of new businesses.^[4] The user fills in a questionnaire, which takes about half an hour to complete and concentrates on the business' concept, finances, founders and advisers.^[8]^[9] Because the procedure is designed for very new companies, questions on revenue and traffic are not included.^[6] The site then provides an estimate of what the company's value will be after three years and a score from 1 to 1000 representing its value as an investment.^[8] The service is free for the startups themselves, but YouNoodle intends to charge third parties for access to the results.^[10] (The level of detail required by the questionnaire makes it difficult for people without inside knowledge of a company to provide the data for a prediction on their own.^[11])

The company's founders have declined to explain the algorithm in detail, but state that it takes into account the entrepreneurs' experience, networks and mutual relations. Information provided by companies which use the site's networking features is used to improve the algorithm.^[1] As of August 2008, the algorithm was based on data from 3,000 startups.^[10] In the same month the company had four patents pending on the technology.^[4]

In August 2008, YouNoodle predicted that its own value in 2010 would be $96 million.^[2]

Independent analyses

Preliminary reports on the service in February 2008 led to skeptical reactions. Venture capitalist Paul Kedrosky told The New York Times, "If their tool did such a good job, they'd raise a fund themselves and beat the tar out of us."^[1] When co-founder Bob Goodson argued that "industries of comparable size have utilized artificial intelligence to inform decision-making",^[1] Duncan Riley of TechCrunch cited the poor track record of systems intended to predict the results of horse racing.^[12] Michael Arrington, also of TechCrunch, dismissed the idea as "hype and nonsense" and wrote that he would not even have covered it if not for the project's notable backers.^[13] Goodson responded to criticisms by stating that the process did not aim to "predict all the factors" affecting a company's success but to bring greater mathematical rigor to the type of assessment that investors were already making.^[5]

When the predictor launched in August, Michael Arrington tested it using historical data about developed businesses. He found it underestimated the value of Google, Facebook, Slide.com and RockYou! but correctly predicted major success in all four cases. For example, Slide.com, worth $550 million, was predicted to be worth $124 million. The site gave a much more accurate estimate for Powerset ($104 million compared to an actual $100 million), and Arrington suspected its estimate for Twitter was "probably close to accurate". Arrington concluded that the predictions were "both interesting and accurate enough to be useful"; he was "still skeptical" and expressed concern that an algorithm based on past data might become outdated, but thought that if the system convinced others "it could become part of Silicon Valley culture".^[10] John Cook used available data and some guesses to acquire an estimated valuation of $152 million for Zillow.com in October 2008, compared this with an independent estimate of a $225 million value in April 2008, and concluded that YouNoodle's estimate was "in the ballpark".^[14]

Scott D. Anthony, president of the consulting and investment company Innosight, argued that if YouNoodle were to succeed ("and that remains a big if") it might lead to "substantial change in the venture capital industry", comparable to the way credit scores affected the work of loan officers.^[15] Anthony Ha, a journalist writing for VentureBeat, concluded based on the imprecise valuations in Arrington's tests that the scores out of 1,000 might be more useful for ranking the relative potential of different companies.^[6] Michelle Rodger gave the predictor a basically favorable assessment but noted the difficulty of quantifying "intellectual assets".^[16] Liz Gunnison described it as "fun" but doubted its long-term potential.^[8]

Richard Tyler, Enterprise Editor at The Daily Telegraph, noted that most coverage had focused on the service's value to potential investigators. He suggested that while it could support an investment decision "ultimately determined by an experienced and well connected investor", it would be more useful in allowing the founders of a company to examine how changes in their team affected predicted outcomes.^[17]

Future plans

YouNoodle intends to launch a tool that will measure the independent attention received by a company, taking into account data which include comments on blogs.^[11]