YouNoodle Makes Me Feel Much Better about My Finances

Here at SarahLacy.com you could say we're investing in the growth of the business. Think the User Generated Book Tour makes money? HA! My credit cards are wheezing from overuse. And the very talented Olivia certainly isn't volunteering, nor should she be. Combined with a new mortgage and an upcoming $10,000 electrician bill, Mr. Lacy is getting a little antsy about all the money flowing out of our accounts. YouNoodle just made me feel a whole lot better.

The new startup boasts an algorithm that crunches all kinds of data to tell you what your company will be worth in three years. SarahLacy.com will be worth...click for it....

...$21.6 Million according to the site. When told this my husband IMed back: w0000000000000000000000000000000000000t!

YouNoodle was started by Kirill Makharinsky and Bob "I always see Sarah in elevators and airports" Goodson. (A running coincidence that'd be borderline creepy if he weren't so British and charming.) They also employ regular SarahLacy.com commenter and all-around good guy Sam Purtill. I met all three while working on my book. Kirill was working at Slide and Bob was working at Yelp. (Sam was at a party.) They clearly impressed their PayPal mafia overlords because the dons-- Peter Thiel and Max Levchin-- both invested in YouNoodle.

I was surprised when Michael Arrington reacted so violently to the idea when the company launched several months ago, because I immediately thought it was intriguing when Kirill debriefed me one rainy day at Samovar Tea Lounge in San Francisco. In a Valley of constant me-too, over-engineered iterations on Facebook, Twitter and Digg this was a refreshingly new and contrarian idea. (Classic Thiel investment, of course.) As I say over and over again these days, the Internet is at its most powerful when it is disintermediating gatekeepers, so I love the idea of a free algorithm replacing a central part of the venture capitalists' job-- an industry that's famously described as an "apprentice-style business" and one that takes a decade to learn how to do well.

Of course, like Arrington, I was skeptical, because typically valuations aren't based on any real metrics. YouNoodle seems to be taking the right approach. The questionnaire focuses on the team, its experience and how long they've worked together and know each other. It asks questions to gauge the team's expectations: How much do they hope to be worth? What would they accept? And it scours the Net to asses buzz and attention (sadly, if this is any guide, that's probably where most of my value came from.) It asked if the company was generating revenues but didn't ask how much and didn't ask a single question about profits or business models. Sounds like a venture capitalist's due diligence to me.

There are a few cons. While the site is a simple idea and beautiful UI, it takes a good thirty minutes to fill out the questionnaire-- that's a long time to wait for a payback on the Net. And it asks a lot of personal information including your cell phone number, and details on everyone on your team including their personal emails. More than a few times I almost aborted because it felt too invasive; I can only imagine a stealth company worrying about privacy concerns. It also can make you feel like a loser the same way buying a house in San Francisco can make you feel poor. (ie: wait, you only have ONE degree and you've never started another company??)

Of course, that last one isn't an issue for serious entrepreneurs. It's not like VCs welcome you with hugs and cookies. All three drawbacks are obviously crucial for the algorithm to be worth anything-- but that's just the thing. For you to deal with them, it has to be worth something. And that's up for debate. I think it is, especially for startups outside the Valley who are trying to get a snapshot of their business and can use the social networking features to connect with investors and other potential team members. One-third of the way through my book tour, I'm realizing how much entrepreneurs crave community and reassurance and-- most of all-- just practical feedback and how much we take all that for granted in the Valley. I'm hoping some of the folks I've met with try out YouNoodle. Let me know what you think in the comments!

BTW: I mentioned the social network aspect. It's the least exciting part about the site to me, because there are just so many other ways to connect online. But one thing stuck out to me: When you clicked to accept someone as a friend it shows a warning screen that asks you if you really know them, and cautions you should only add people you really know. In this day and age of cheap, forced virality, I absolutely love this feature. I am rabid about only adding people on LinkedIn or Facebook that I know, and that's why the sites are so useful to me. I know so many people who feel obligated to add everyone, and they all eventually wind up abandoning these bloated profiles and declaring the sites unusable.

[NOTE: Yes, this is the post that got deleted when Vimeo crashed my computer and yes it was better the first time :( ]

Comments

[Shafqat]

OK, its different, I'll give you that. But its simply doesn't work. I don't know what else to add. The algorithm throws out ridiculous numbers, and if it was a joke/parody site, I think it would be funny. But its supposed to be a serious venture. If the results are so unbelievable (read: ridiculous), how can we take the venture seriously?

I''m normally very supportive of all startups, and I admire that these guys had the cajones to go for such a risky idea. But as it turns out, it seems like a giant fail to me. I wish the m the best and hope they can surprise me by improving their algorithm over time.

[sarah lacy]

shafqat: give me some examples because the ones mike crunched on TC were pretty right on-- if not conservative.

[sarah lacy]

also remember: it's making a science out of what a VC would come up with. my point is a VC examines all those same variables that younoodle emphasizes and typically weights them similarly. a lot of people consider their valuations "a joke" too. early stage startups never have been and never will be based on revenues and profits-- period. it's based on promise. to many people that's absurd and "throwing out numbers" but that's the way this economy works. again, why it's called risk capital. (thanks as always for commenting!! you deserve a gold star or at least a free tshirt!)

[Sam Purtill]

I just wanted to let you know that my mom printed out this. Ha! Thanks for the write up, great feedback and glad you liked it.

[Shafqat]

For some examples, check out this HackerNews thread here: http://news.ycombinator.com/item?id=269506

It seems to work fairly well for well established startups like the ones Mike tested. However where it really fails is for very early stage startups. Most of the one/two person 'projects' that were tested on HackerNews gave valuations in the multi-millions, which seems strange. I agree that its attempting to quantify some of the 'art' behind VC valuations, and I like most metric-based methodologies. But I think they need to really look at why some of the numbers are so far-fetched. Its probably just a case of tweaking a few variables. But they just launched, so as mentioned previously, will give them the benefit of doubt for now.

I'll take a gold star! Haven't gotten one of those since 1st grade. Alternatively, you can bring your UGBT to Europe sometime soon!

[sarah lacy]

shafqat: remember mike put in the variables available 3 years ago-- not today. so there's shouldn't be a difference. as for early stage startups we'll really have to wait and see. at least younoodle has a 3 year time horizon and not a 10 year one like VCs!

[Shafqat]

Touché! You're right - he did put in retroactive values for the variables. Let's give it some time. If in three years, sarahlacy.com is worth 21.6M and NewsCred is worth 20.6M (must be book deal that gave you the edge), we'll both be laughing all the way to the bank. WOOT!