Why investors love spin-off startups

The difficulty in identifying the next hot startup has lead many venture firms to employ a wasteful “spray and pray” strategy, sometimes making more than 1,000 investments in the hope of getting lucky with a wildly successful startup that more than pays off their other sunk costs. Spin-offs from known companies, in contrast, mean less risk, as investors have a clear view of the reputation, infrastructure, and credentials of the parent company. For founders, being at the helm of a spin-off rather than a from-scratch startup, has its advantages, too — you’re likely to get VC funding more easily and on more favorable terms.

Source: Why investors love spin-off startups

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