I help run a YC alumni-led fund, and one of the questions that always comes up for our group is: What's the optimal number of YC companies to back per batch?<p>We built an app that uses two models for approaching this problem - we call it the Unicorn Ratio.<p>Live version: <a href="https://orangecollective.vc/unicorn-ratio" rel="nofollow">https://orangecollective.vc/unicorn-ratio</a><p>Repo: <a href="https://github.com/orangecollective/unicorn-ratio">https://github.com/orangecollective/unicorn-ratio</a><p>The two models it uses are:<p>Kelly Criterion—A mathematical model that optimizes portfolio construction.
<a href="https://www.investopedia.com/articles/trading/04/091504.asp" rel="nofollow">https://www.investopedia.com/articles/trading/04/091504.asp</a><p>Binomial Distribution—A probability model that predicts your chances of backing a unicorn based on portfolio size and historical success rates
<a href="https://www.investopedia.com/terms/b/binomialdistribution.asp" rel="nofollow">https://www.investopedia.com/terms/b/binomialdistribution.as...</a><p>We actually learned of the Kelly model last week during a call that YC organized for a group of demo day investors (thanks YC). We built and open-sourced this in the same spirit of collaboration.<p>Related, on the My First Million podcast, Garry revealed some data for investors at YC Demo Day—specifically the returns for investors who consistently backed 3+ startups each batch over a two-year span. Here’s the 1 min clip.<p><a href="https://youtube.com/clip/UgkxVnlzcslmeMCTDFc9G2R--W7pigxVe8Nz" rel="nofollow">https://youtube.com/clip/UgkxVnlzcslmeMCTDFc9G2R--W7pigxVe8N...</a><p>So, what’s the takeaway here?<p>Conventional VC wisdom is all about making a few, highly concentrated bets. But this suggests a broader, more systematic approach to YC investing could also be a viable strategy (and likely put you amongst the top returning funds).<p>LMK if there are other models or approaches worth considering too.<p>Disclaimer: don’t use these models as investment advice.