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70% of VC backed founders end up with zero in capital gains, after toiling for 5-10 years... primary reason is they are "forced" to grow at unnatural high rate

70% of VC backed founders end up with zero in capital gains, after toiling for 5-10 years... primary reason is they are "forced" to grow at unnatural high rates, to attempt to deliver exponential 50x returns to their (diversified) VCs, which usually doesn't work out. I wonder how that number would be different, for those very same companies, had they not taken investors?

ymolodtsov 8y ago
70% of tech startups (or even more) fail on themselves and not just because they took VC money. It's just a risky asset class and people should understand that. And the most of them would be impossible to properly launch without significant initial investments as most of the time the idea is to reach near zero marginal costs and scale by investing a lot in your tech/community.
- mrnobody_67 8y ago
  Main point is the startup risk is unnaturally amplified by capital, which increases monthly costs, with the hope of generating unnatural growth rates that never arrive... It'd be really interesting to see the failure rate of bootstrapped tech startups vs. those that took VC money, I'm betting it'd be a lot lower.
nostrademons 8y ago
They'd probably toil for 5-10 years for wages significantly less than what they could've earned working for a FAANG. At least, that's the usual outcome I see for bootstrapped founders. VCs react to the extreme winner-take-all dynamics of the economy, they don't cause it. Those dynamics will still chew you up and spit you out even if you don't take VC, they'll just do so with a lot less drama and nobody to blame.
- DVassallo 8y ago
  There are ~30 million businesses in the US. What's this natural winner-take-all dynamic you talk about?
  - nostrademons 8y ago
    This thread isn't about businesses in general, it's about tech businesses. Most of those businesses are in commodity markets like restaurants, hair salons, auto body shops, professional services, and other local businesses. There are geographic barriers to entry for one company taking over the whole market in those industries (not that that necessarily stops them - witness McDonalds and Wal-Mart). There are no such barriers to entry on the Internet. The Internet is new, which means that a number of niches sprung up in the last few years. Most people I know who've capitalized on them make a good living for about 5 years and then find that customers dry up as the industry matures, the next technology platform arrives, and the industry leaders eat up all the rest.
    - DVassallo 8y ago
      That's not how I see it. We don't see a winner-takes-all in things like project/productivity/development/collaboration tools, etc. The fact that the barriers of entry are low make it so! There's no reason to believe that small independent tech businesses can't earn their owners a sustainable FAANG-like salary in tech businesses with low capital needs. It's when there's high capital requirements that we actually get a winner-takes-all, such as with building data centers, or doing highly regulated stuff, etc.
      - nostrademons 8y ago
        Just wait. ;-) Low barrier to entry tends to drive down profits until they're just above the opportunity cost of working anywhere else. FAANG salaries are inflated because those companies have monopolies in their industry, so they make massive profits and can push some small portion of that down to employees to ensure they get their pick of applicants. Economically, the returns to small SaaS businesses without barriers to entry should eventually trend toward the median for programmers in general once sufficient time has passed that they no longer hold a monopoly in their industry.

ymolodtsov 8y ago

70% of tech startups (or even more) fail on themselves and not just because they took VC money. It's just a risky asset class and people should understand that. And the most of them would be impossible to properly launch without significant initial investments as most of the time the idea is to reach near zero marginal costs and scale by investing a lot in your tech/community.

mrnobody_67 8y ago
Main point is the startup risk is unnaturally amplified by capital, which increases monthly costs, with the hope of generating unnatural growth rates that never arrive... It'd be really interesting to see the failure rate of bootstrapped tech startups vs. those that took VC money, I'm betting it'd be a lot lower.

nostrademons 8y ago

They'd probably toil for 5-10 years for wages significantly less than what they could've earned working for a FAANG. At least, that's the usual outcome I see for bootstrapped founders. VCs react to the extreme winner-take-all dynamics of the economy, they don't cause it. Those dynamics will still chew you up and spit you out even if you don't take VC, they'll just do so with a lot less drama and nobody to blame.

DVassallo 8y ago
There are ~30 million businesses in the US. What's this natural winner-take-all dynamic you talk about?
- nostrademons 8y ago
  This thread isn't about businesses in general, it's about tech businesses. Most of those businesses are in commodity markets like restaurants, hair salons, auto body shops, professional services, and other local businesses. There are geographic barriers to entry for one company taking over the whole market in those industries (not that that necessarily stops them - witness McDonalds and Wal-Mart). There are no such barriers to entry on the Internet. The Internet is new, which means that a number of niches sprung up in the last few years. Most people I know who've capitalized on them make a good living for about 5 years and then find that customers dry up as the industry matures, the next technology platform arrives, and the industry leaders eat up all the rest.
  - DVassallo 8y ago
    That's not how I see it. We don't see a winner-takes-all in things like project/productivity/development/collaboration tools, etc. The fact that the barriers of entry are low make it so! There's no reason to believe that small independent tech businesses can't earn their owners a sustainable FAANG-like salary in tech businesses with low capital needs. It's when there's high capital requirements that we actually get a winner-takes-all, such as with building data centers, or doing highly regulated stuff, etc.
    - nostrademons 8y ago
      Just wait. ;-) Low barrier to entry tends to drive down profits until they're just above the opportunity cost of working anywhere else. FAANG salaries are inflated because those companies have monopolies in their industry, so they make massive profits and can push some small portion of that down to employees to ensure they get their pick of applicants. Economically, the returns to small SaaS businesses without barriers to entry should eventually trend toward the median for programmers in general once sufficient time has passed that they no longer hold a monopoly in their industry.