Venture Capital is a domain of Investment Banking specialized in backing early stage (pre-IPO) companies. Unlike the traditional stock market (NASDAQ, S&P, etc.), retail investors are barred from investing in them and is reserved exclusively for these kinds of banks or highly wealthy individuals. We hear of ‘Unicorns’ all the time that ballooned into huge billion-dollar companies, but startups carry substantial risk and only the very best are able to become the next Amazon, Tesla, Apple, or Microsoft. Another challenge with startups is that they are very illiquid, unable to easily get out of your position as there are very few 'exit’ opportunities and can come at high costs. Correctly classifying such high risk, high reward companies is an ongoing and fundamental problem to investment banking. Previous research has been conducted from Imperial College, using Startup data from various countries which we have expanded upon in this report.
The goal of the project is to analyze around 7,500 US based companies founded between 2005 & 2013 by building a model to correctly classify successful & unsuccessful companies based on our set criteria of success. After reading past research projects tackling a similar problem, we decided to base our success criteria on assuming a company was continuing to grow or has gone public [1][2].
We stated this by setting our search parameters to the following: Has had a funding round in 2018 or later. Assumes that the company is still being funded and growing. Has had an IPO. Once public, an Exit Opportunity is always available and assumes success. Has had more than 7 funding rounds. Indicates that the startup still has potential and growth.