FYI – here is a question I got that I want to clarify (the page was temporarily down, but has been fixed):
Question:
(1) I’m confused as to how assuming zero new company growth rate would result in favorable deltas in the payout calculations. Fewer new companies mean fewer chances for a profitable outcome. Concretely, it seems to me you’re saying that setting “Republic New Company Annual Growth Rate” to zero leads to higher payouts, which it (sensibly) doesn’t.
(2) The optimistic growth rate seems high to me. Having to evaluate 200 companies a year is already a time sink. Growing the number of new companies by 35% seems high. People will start facing the “paradox of choice”– having too many items to choose from will lead to analysis paralysis.
My Clarification:
1) Sorry for the confusion. What I meant was that – by assuming 200 new companies in Year 1 (next year) instead of the initial assumption (35% YoY continual growth on the ~124 companies) and then keeping the growth rate flat at 200 companies/year for simplicity’s sake (not realistic), then that would be a conservative assumption that, if the 200 companies/year are realized next year, would under-predict the real-world results that would likely see years 2-15 at higher number of companies than 200/year. Even if the growth rate on adding 200 companies per year is lower at say 5-10% per year, it would be a much more optimistic picture than the original analysis. So a 0% growth rate on the 200 companies/year in the model is likely under-predicting the true value (assuming they can hit that next year).
2) Agreed – which is why, for being conservative and simplistic, I just assumed that they can hit 200 companies/year next year and then maintain that level in the coming years.
What the model should really do if I had the time is start with a much higher growth rate in say years 1-3 (maybe 100%, 200%, etc., which is what they’ve been experiencing), but then move down to something much more conservative, which could be as low as 5-10% in the later years.