A Machine Learning Approach Towards Startup Success Prediction

The importance of startups for a dynamic, innovative and competitive economy has already been acknowledged in the scientific and business literature. The highly uncertain and volatile nature of the startup ecosystem makes the evaluation of startup success through analysis and interpretation of information very time consuming and computationally intensive. This prediction problem brings forward the need for a quantitative model, which should enable an objective and fact- based approach to startup success prediction. This paper presents a series of reproducible models for startup success prediction, using machine learning methods. The data used for this purpose was received from the online investor platform, crunchbase.com. The data has been pre-processed for sampling bias and imbalance by using the oversampling approach, ADASYN. A total of six different models are implemented to predict startup success. Using goodness-of-fit measures, applicable to each model case, the best models selected are the ensemble methods, random forest and extreme gradient boosting with a test set prediction accuracy of 94.1% and 94.5% and AUC of 92.22% and 92.91% respectively. Top variables in these models are last funding to date, first funding lag and company age. The models presented in this study can be used to predict success rate for future new firms/ventures in a repeatable way.