Startups pivot all the time, and are constantly changing their products. Therefore we should expect that a startup’s profitability in year T doesn’t predict very well their profitability in year T+1.
Yearly profitability isn’t the right measure before IPO; most startups aren’t optimizing for profitability (and indeed never become profitable until after IPO). High losses can indicate failure, or they can indicate rapid scaling of a successful model. So unpredictable profits aren’t really evidence of eventual success being unpredictable. Even if eventual success was relatively predictable we would expect profits to fluctuate along the way depending on the company’s specific growth trajectory.
Sure. For better or for worse that’s what the paper I cited measured, so that’s why I was using that metric.
If you prefer though: startups have significantly higher fluctuations in valuation than public companies, and presumably valuation captures whatever metrics are relevant.
Yearly profitability isn’t the right measure before IPO; most startups aren’t optimizing for profitability (and indeed never become profitable until after IPO). High losses can indicate failure, or they can indicate rapid scaling of a successful model. So unpredictable profits aren’t really evidence of eventual success being unpredictable. Even if eventual success was relatively predictable we would expect profits to fluctuate along the way depending on the company’s specific growth trajectory.
Sure. For better or for worse that’s what the paper I cited measured, so that’s why I was using that metric.
If you prefer though: startups have significantly higher fluctuations in valuation than public companies, and presumably valuation captures whatever metrics are relevant.