Shapes of Start-ups (FUNDED)

What story does a shape tell? Consider the following figure it represents the shape of a particular start-up’s story. The x-axis is the time line; the y-axis is the money line. The drawing is deliberately formal since we wish to see how many inferences can be made from it.

Funded Start-up

Shape of Funded Start-up

  1. The length ‘0 to y’ on the y-axis represents the amount of money invested for the product to be delivered at time t1. The shaded area from 0 to t1 is the effort to code/test/deliver the product to the market, at the end the monetary infusion may be depleted to near zero. It can be thought of as a (naked!) call option sold by the product owner to the fund provider, who assumes that the value of the company and thereby his investment will increase at t1. The option may be exercised at t1 for an agreed amount of equity of the start-up, assuming that the promised product is ready for market, if not the option will expire worthless! This is not entirely true nor is it complete analysis there is much more to this than expressed in these few lines.
  2. The duration from t1 to t2 is a wait time before clients buy into the product and the payoff begins. The shorter this wait duration the better for the product. This is also the time during which the funds are depleting fast and the longer the duration the more likely that the product will be confined to the also ran of history.
  3. Beyond t2 the product begins to acquire ever more clients and we are now truly in the money. Of course this will never be a smooth line as depicted but much more up-and-down with many troughs and many peaks.

The shape is not representative of a typical scenario for a start-up it is much more like the Cinderella version mentioned by Kurt Vonnegut in his presentation.

For more information on “Shapes of Stories”,

  1. Kurt Vonnegut
  2. Sarah Prevette
  3. Ash Maurya


While researching options strategies, in particular, “Long Synthetic Split Strike”, the similarity of it’s profit profile at expiry to the start-up story (described in the blog) was the reason for this tongue-in-cheek scribble.  The options strategy is purchased when one is bullish about the underlying stock. This translates in the start-up story to the investor being bullish about the idea behind the start-up and buying the call option on the idea. But, at  issue is the put option, how does the investor cover his down side risk (selling a put on the idea). So perhaps a story has a shape but the shapes don’t categorize the stories! It would be very strange if they did!  This was a nice and instructional diversion, to be definitely revisited every so often.

Note: Investors do not use this type of reasoning to make investments in start-ups.

About KM Mukku

Kick-start, build and manage teams in product development (particularly in the financial domain), and enjoy all in adaptive case management, business process design and business process improvement. Currently holding the position of CTO at coMakeIT.
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