Startup Funding Espresso -- Survivorship Bias

Survivorship Bias

Hello, this is Hall T. Martin with the Startup Funding Espresso -- your daily shot of startup funding and investing.

Survivorship bias is defined by Wikipedia as concentrating on the people or things that "survived" some process and inadvertently overlooking those that didn't because of their lack of visibility.

Incubators often measure their results based on startups that get funded rather than all the ones who go through the program.

Taking out the startups that failed early can skew the results by only counting the ones that are up and running.

To overcome survivorship bias, consider the following:

Maintain awareness of the survivorship bias when evaluating a metric.

Consider what has been left out of the calculation.

In our incubator example consider how many companies applied, were accepted, and started the program but were never counted in the metric because they didn’t build a running company.

Find alternative data sources.  

In this example, look for companies that went through the program and talk to both those who succeeded and those that did not.

Go beyond the initial statistic as it often measures only a part of the story.

 

Thank you for joining us for the Startup Funding Espresso where we help startups and investors connect for funding.

Let’s go startup something today.

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