The Impact of Startup Growth and Venture Returns on Collective Memory: Insights from Mathematical Analysis

The Impact of Startup Growth and Venture Returns on Collective Memory: Insights from Mathematical Analysis

In the fast-paced world of startups and venture capital, one cannot underestimate the importance of growth and returns. A recent study titled "Startup Growth and Venture Returns: What We Found When We Analyzed Thousands of VC Deals" sheds light on the relationship between these factors and how they impact the success of a startup. Additionally, another study titled "Maths shows how we lose interest" explores the decay of collective memory and its implications for society. By examining the commonalities between these two studies, we can gain valuable insights into the dynamics of growth, returns, and memory.

The first study highlights two key reasons why seed-stage returns tend to be more extreme than later rounds. Firstly, startups experience faster growth in their early stages, which contributes to higher returns. Secondly, seed investments have a longer time frame to compound these higher growth rates. As a result, investors can increase their expected return by broadly investing in every credible deal at the seed stage. However, the study also suggests that even investors with the skill to pick deals may struggle to beat the index. Simulations reveal that fewer than 10% of investors will outperform the index, emphasizing the importance of diversification in venture investing.

To avoid missing out on the best seed deals, the simplest strategy is to invest in every credible deal. While this may seem counterintuitive, it allows investors to capture the potential of high-growth startups and benefit from their compounding returns. By spreading investments across a diverse portfolio, investors increase their chances of backing a winner. This strategy aligns with the findings of the study, which indicate that growth drops off in a startup's second year of funding and continues to decrease further. By investing in every credible deal, investors can mitigate the risk of missing out on startups that experience significant growth early on.

Now, let's shift our focus to the second study, which explores the decay of collective memory. The researchers analyze online views of Wikipedia profiles, citations of scientific papers, and online play counts of songs and film trailers. They discover that the decay of collective memory follows a mathematical law known as a biexponential function, which consists of two phases. The initial phase is characterized by a steep decline in attention, primarily driven by word-of-mouth transfer of information. However, the subsequent decline in attention is much gentler and slower, relying on cultural memory sustained by the physical recording of information.

This two-phase system of collective memory decay aligns with the insightful words of Chilean writer Pablo Neruda: "Love is so short, forgetting is so long." The initial decline represents the short-lived nature of communicative memory, which relies on oral transmission and is vulnerable to forgetting. However, the second phase, dominated by cultural memory, endures for a more extended period. Cultural memory is sustained by the physical recording of information, such as books, articles, and digital archives. This phase is less susceptible to decay and plays a crucial role in shaping identity and society.

Combining the insights from both studies, we can draw valuable parallels between the dynamics of startup growth and collective memory. Just as startups experience rapid growth in their early stages, collective memory exhibits a steep initial decline in attention. The growth of startups relies on factors such as market traction, product-market fit, and customer acquisition. Similarly, the initial decline in attention is driven by word-of-mouth transmission, highlighting the importance of communication and shared attention.

However, just as startups experience slower growth rates as they mature, the decline in attention also transitions into a gentler slope. Startups that sustain their growth often rely on factors like brand reputation, customer loyalty, and market dominance. Similarly, the enduring phase of collective memory depends on cultural memory, which is sustained by physical recordings and accessibility through platforms like Wikipedia, scientific journals, and online media.

Based on these insights, we can derive actionable advice for both startup founders and individuals seeking to preserve collective memory:

• 1. Startup Founders: While rapid growth is crucial in the early stages, focus on building a strong foundation for long-term success. This includes investing in brand building, customer loyalty, and sustainable growth strategies. By transitioning from rapid growth to sustained growth, startups can maximize their chances of long-term success.

• 2. Individuals and Society: Recognize the importance of preserving cultural memory. Support initiatives that document and record information for future generations. Engage with platforms like Wikipedia, scientific journals, and libraries to ensure the accessibility and searchability of collective knowledge.

• 3. Investors: Diversify your portfolio to capture the potential of high-growth startups. By investing in every credible deal, you increase your chances of backing a winner and benefiting from compounding returns. Avoid the risk of missing out on startups with significant early-stage growth by adopting a broad indexing approach.

In conclusion, the analysis of startup growth and venture returns, along with the decay of collective memory, provides valuable insights into the dynamics of success and longevity. By understanding the commonalities between these two areas, we can make informed decisions in our entrepreneurial endeavors and contribute to the preservation of collective memory. Whether it's building a startup or cherishing our shared history, the lessons learned from these studies can guide us towards a more prosperous and connected future.