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A framework for optimizing startup portfolio construction when investing in cohorts, using the Kelly Criterion and Binomial Distribution. Built by Orange Collective (Live Demo).
This tool is for educational and research purposes only. It provides a mathematical framework for thinking about portfolio construction but should not be used as the sole basis for investment decisions.
The Unicorn Ratio helps investors determine the optimal number of startups to invest in for a given cohort. It provides two different approaches:
The Kelly Criterion is a formula that determines the proportion of capital to allocate to each investment based on the probability of success (i.e. historical unicorn rate).
The Binomial Distribution model analyzes the probability of achieving a desired number of unicorns (e.g., 1 unicorn) given a set number of investments and a fixed probability of success.
Skill Assessment: The models rely on an accurate self-assessment of the probability of success. Applying a higher skill level effectively reduces the cohort size.
