Rebel Fund – How it works
Rebel Fund is a venture capital company, based in the US, which aims to invest in the best tech startups that apply each year to Y Combinator, the #1 accelerator in the world with 80+ unicorns and $600B+ in portfolio company value. The fund’s due diligence and investing decisions are made by a team of accomplished Y Combinator alumni who have founded companies now valued over $85B in aggregate, invested in 200+ startups, and generated top-decile portfolio returns. Rebel utilizes a proprietary machine-learning algorithm called Rebel Theorem to help validate and screen potential investments, building a diversified portfolio of top Y Combinator Startups that is statistically powered to outperform.
How does the algorithm really work?
The MIT-trained scientist Ajay Saini created a machine learning technique, called the Rebel Theorem, to achieve successful screening of startups based on exit probability and forecast ROI. This version of algorithm is an extension and improved version of a model he developed during his years at graduate school, along with two other colleagues.
The terms plugged in the model start from founder-related metrics, such as:
- previous companies founded
- financial outcomes of previous companies
- university attended
- type of degree, major and year of graduation
This is useful as at a very early stage, the bets on how successful a venture is going to be are based on who is behind the company itself. Over the years, thanks to the increasing data that is collected from the startups in each Y-combinator batch, it was possible to then turn quantitative data into metrics that would result in investment decisions.
Obviously, numbers and data are not the only criteria to take into account, as additional information is needed for a final decision, such as if the company is a good idea, good values and purpose.
The first batch happened in 2005, and stands now with 10+ years of outcomes on data on 1500+ Y combinator startups. Today, the following represent some of the pillars behind the final decision towards startups funding:
- founder previously started a company that was acquired and/or had an IPO
- founder was an early employee for a company that was acquired or had an IPO
- founder has attended a top university
- founder earned a Bachelor degree
Rebel Fund shows how there is richness in diversity, meaning that a factor they highly value is if two founders of a startup went to different universities, as it brings different and complementary experiences and knowledge.
To conclude with some useful numbers, the algorithm ended up ranking and forecasting in the top-quartile of their YC batch companies that achieved 40x gross ROI on average for seed-stage investors, this is assumed on a basis of $7-8M valuation.