There was just an article linked on HN the other day by some professor who pointed that out. But the logic is pretty straightforward: Most startups fail. Sup

There was just an article linked on HN the other day by some professor who pointed that out. But the logic is pretty straightforward: Most startups fail. Suppose startups that succeed have a return of x%. Compare this to established firms, which rarely fail, and usually have positive returns, even though they're less than the returns of the 1 in 30 successful startup. So overall, the investor would be better off investing in big firms -- this is why the SEC restricts investing in "high risk" startup firms to accredited investors only. Of course, if you found a startup you surely don't expect it to fail (I know I don't). Investing in a startup (as in investor or founder or employee) has a greater chance of making you millions, and a greater chance of making you nothing, compared to an established firm. But on average, the returns from startups (when you include all those that fail) is worse than for bigger firms. This is why successful VC firms are picky with who they invest in and why they focus on profitable exits even at the expense of a more sustainable long term strategy. It's also why 37 Signals focuses on telling people to start a sustainable small business rather than a startup -- startups and the associated gabling psychology are often poor investments, and one doesn't necessarily want to forsake a nice small business in order to make a big gamble.