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According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren

According to Statista there were 16,464 VC deals signed in 2022. There were 181 IPOs in that year. The most IPOs in a year ever is 1,035. Obviously the two aren't directly comparable, but the point I'm getting at is that an IPO exit for any company is really unusual. If you found a company and take on VC funding your exit event is much more likely to be getting acquired if you don't fail. It does happen, and deservedly so, but if you're at a point prior to raising 'what if we IPO?' probably isn't a very useful question.

jacquesm 3y ago
Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.
- adventured 3y ago
  Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all businesses the failure rate is around one in five in the first year [0]; for restaurants the failure rate is ~60% in the first year, and ~80% fail within five years. [0] And again, don't forget to assume the figures are even higher because the figures will never fully account for zombie businesses or quasi-zombies and the equivalent.
  - Joeri 3y ago
    I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.
    - fbdab103 3y ago
      There is somewhat fuzzy on where you even draw the line. Does someone moonlighting on their Wordpress side hustle count as a company? There are many of those which seem unlikely go bankrupt - the most frequent end state is the sole proprietor quits due to lack of work or interest.
    - timparsa 3y ago
      90%+ for "tech startups," although it's very hard to find data that sorts through all the startups and separates them into tech and non-tech startups. Good source is https://www.failory.com/blog/y-combinator-failures#:~:text=Out%20of%20these%2C%20there%20are,to%20have%20shut%20down%20already https://www.failory.com/blog/y-combinator-failures#:~:text=O....
  - marcosdumay 3y ago
    Those figures also do not account for selling all of the company's property with some profit and closing it down; the equivalent of an acquihire for small and medium companies is counted as failure. Running it successfully for a couple of years and changing your mind is counted as a failure too. I don't have a link on hand, but I've seen studies from people that counted how many business actually closed due to money problems. The actual rate of non-problem business after 5 years is close to 80%.
    - jacquesm 3y ago
      I would expect it to be close to 100%. The difference between the 80% and the 100% is the ones that grow in spite of and sometimes because of their problems. Every business will run into trouble, sooner or later. In fact I don't recall a year in the past decade without some kind of crisis that needed fixing. Some self inflicted, some just circumstance and some outside malice. Never a dull moment if you run a small company.
      - DeathArrow 3y ago
        >Every business will run into trouble, sooner or later. Even large businesses that have comfortable cushions and safety nets?
        jacquesm 3y ago
        Yes. But they are better positioned to deal with it and will likely survive. But even the IBMs, HPs and Boeings of this world are not immune.
- Alex3917 3y ago
  > But no less unusual than building a successful company to begin with. Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app. Which one do you think was easier to build?
  - tptacek 3y ago
    I sort of don't doubt that VC-funded companies are less likely to succeed than bootstrapped companies, simply because bootstrapped companies can keep afloat with consulting and VC-funded companies can't. But vastly lower odds of product success sounds like something that'll need a citation. It seems likely that VC-funded app store pure plays without a recurring revenue SAAS component are much less likely to succeed than indie app store pure plays, but that's because VC is obviously the wrong model for one-and-done app store transactions. If you have a good idea for an app, don't raise for it (you'll have a hard time raising for it anyways).
    - Alex3917 3y ago
      IIRC each time you raise a round, your chances of success go down by ~10x. Can't find a good cite offhand though.
      - jacquesm 3y ago
        Once you're in the VC cycle though not being able to raise another round when you need it is a 100% decrease in your chance of success. So I'm not sure if that follows for any but the first. Essentially you need to keep raising until you either reach profitability at scale, are acquired or IPO, and even the latter won't help you if you aren't eventually profitable.
      - tptacek 3y ago
        Every time you raise a round, the outcome you're shooting for is magnified. If you're raising an A round, you're not getting acquired after your seed; you're rolling the dice on getting a much better outcome. If you're raising a B round, you've got some facsimile of product-market fit, and you've decided to take the company to the point where the only "successful" outcomes are denominated in hundreds of millions of dollars, etc. So it's not surprising that there's a stat somewhere that says "committing to a 500MM sale decreases your odds of success over satisficing with a 50MM sale", right? Very few software companies of any provenance end up going public, but by the time you're raising a C, that's essentially what you're saying you're going to do.
- marcosdumay 3y ago
  Sure, most initiatives fail. But successful ones are not so rare that you don't expect to see one. If you go all the way until you realistically start a company, you are more likely to succeed than to fail.
71a54xd 3y ago
There are plenty of other ways to exit that don't involve an IPO. Acquisition, selling shares on secondary markets or privately etc... Doing VC the wrong way can make your life hell, but taking all the risk yourself and bootstrapping is in its own right a special kind of hell if you're not careful. IMHO, it's all about time horizon. Working on a startup for 3-4 years without a clear product market fit or some kind of exit is a waste of time unless you're a Jensen (which most of us aren't anyways).
- DeathArrow 3y ago
  And is worse to fail losing your own time and money than to fail losing VC money. In the second case, you can get up and try it again easier than in the first case.
  - 71a54xd 3y ago
    Could not agree more! There are smart ways to leverage VC $$ without losing your shirt. I'd rather buy a car wash business from a boomer with a bank loan than risk my own time with a non VC funded startup.
blindriver 3y ago
90% of all startups fail so the expectation of an IPO when you join a startup is insane.
- hinkley 3y ago
  And yet many of those companies expect their employees to be excited by that prospect.
c7b 3y ago
According to the same source, 2022 was the second-most VC deals since 2006, and ca the 4th worst for IPOs according to stockanalysis.com. There's clearly a massive upward trend in VC deals, while IPOs are much more stationary. Eyeballing those charts, the average number of VC deals, especially in the relevant period for today's IPOs (10+ years ago), is probably closer to 5-6k, and the average number of IPOs to 250, ie ~5%. Combining this with the folk wisdom that 90% of all startups fail, this seems to suggest that half of the successful startups go public, actually. Lots of things that we'd need to account for (not all IPOs are probably startups, # VC deals != # of startups,...), but speaking about tendencies, the data doesn't seem to support such a strong statement.
jefftk 3y ago
Many startups raise multiple rounds, so I think you're double counting? Don't you need to either divide 16,464 by the typical number of funding rounds or only count, say, series As?
- qeternity 3y ago
  Most startups don't raise multiple rounds in the same year.
  - mwint 3y ago
    They also don’t IPO more than once, usually.
    - beacham 3y ago
      Didn’t know this was even possible. Had to research. It wouldn’t be called “IPO” anymore, but a company can offer subsequent market shares through a Follow-on Public Offering (FPO.) This occurs when a business raises capital in a second round of stock through either dilutive or non-dilutive options. Good to know.
  - jefftk 3y ago
    I don't think that matters? (An extreme example to prime your intuition: imagine that there are one IPO and 10 VC deals annually. If every startup raises money annually and there are 10 startups at any one time, then every funded startup eventually IPOs.)
    - qeternity 3y ago
      I misread your comment. Ignore mine.
bawolff 3y ago
Most businesses fail. My intuition is that rate of failure in software, where its much more winner take all, would be higher than brick and motor businesses, which constantly fail. So really, this doesn't seem surprising.
- fatfingerd 3y ago
  I think it's entering a winner take all market that's strongly correlated with VC money. There's plenty of software companies that outlive restaurants and startup cycles, doing pretty common B2B work, but they are unlikely to accidentally get a valuation based on a probability of winning a winner take all market.
laurex 3y ago
Beyond the issues surrounding the failure rate, it's worth thinking about the extra work to keep satisfying investors, the likelihood that you'll lose at least some measure of control, and fundamentally the ethics of extraction that VC models necessitate, meaning you will need growth even if it's not good for the company or the customers in the long term, and that kind of growth often also means that there's an impetus to ignore the negative impacts on environments, communities, and economies.
- dinvlad 3y ago
  This very much applies to Cloudflare, otherwise it wouldn’t tolerate hate groups hosted in the name of “freedom of speech” and all that PR bs. Ethics not only takes the back seat, it disappears without a trace. And let’s not forget the ethics of continually selling a large chunk of their shares in the company they publicly believe will continue growing and is profitable.
theptip 3y ago
You’d want to compare this with the base rate of failure for a business venture (ideally across the economy and specifically bootstrapped tech companies). Spoiler: most businesses fail. I’d also believe that VC funded companies are more likely to fail as they are making all-or-nothing swing for the fences plays. But you need to compare to the correct baseline to avoid confusion.
paulddraper 3y ago
1. 2022 was historically low for IPOs. 2. Companies will have multiple rounds of funding before IPO. 3. Acquisitions are more common than IPOs. 4. Yes, a significant number of startups fail. If it were easy everyone would do it.
mvkel 3y ago
Sure, and there were 21,421 M&A deals made in 2022. IPOs are just one of the positive outcomes, certainly the rarest.
Aeolun 3y ago
I think the point is that if you go in with those options as the valid outcomes you won’t be surprised. Not that you necessarily have a very high chance of the last two.

jacquesm 3y ago

Of course it is unusual. But no less unusual than building a successful company to begin with. What's normal is failure.

adventured 3y ago
Failure is definitely the commonality. The BLS reports typically that 1/2 of all new businesses (in the US) will formally fail within five years. One can safely guess that at least half of those remaining are something between zombies and hanging on by a thread. 1/4 or fewer will make it 15 years or more. And of course it varies by sector, restaurants notoriously have an exceptionally high failure rate. For all businesses the failure rate is around one in five in the first year [0]; for restaurants the failure rate is ~60% in the first year, and ~80% fail within five years. [0] And again, don't forget to assume the figures are even higher because the figures will never fully account for zombie businesses or quasi-zombies and the equivalent.
- Joeri 3y ago
  I’m wondering about the failure rate for technology companies. It may be higher or lower than restaurants, I have no intuitions.
  - fbdab103 3y ago
    There is somewhat fuzzy on where you even draw the line. Does someone moonlighting on their Wordpress side hustle count as a company? There are many of those which seem unlikely go bankrupt - the most frequent end state is the sole proprietor quits due to lack of work or interest.
  - timparsa 3y ago
    90%+ for "tech startups," although it's very hard to find data that sorts through all the startups and separates them into tech and non-tech startups. Good source is https://www.failory.com/blog/y-combinator-failures#:~:text=Out%20of%20these%2C%20there%20are,to%20have%20shut%20down%20already https://www.failory.com/blog/y-combinator-failures#:~:text=O....
- marcosdumay 3y ago
  Those figures also do not account for selling all of the company's property with some profit and closing it down; the equivalent of an acquihire for small and medium companies is counted as failure. Running it successfully for a couple of years and changing your mind is counted as a failure too. I don't have a link on hand, but I've seen studies from people that counted how many business actually closed due to money problems. The actual rate of non-problem business after 5 years is close to 80%.
  - jacquesm 3y ago
    I would expect it to be close to 100%. The difference between the 80% and the 100% is the ones that grow in spite of and sometimes because of their problems. Every business will run into trouble, sooner or later. In fact I don't recall a year in the past decade without some kind of crisis that needed fixing. Some self inflicted, some just circumstance and some outside malice. Never a dull moment if you run a small company.
    - DeathArrow 3y ago
      >Every business will run into trouble, sooner or later. Even large businesses that have comfortable cushions and safety nets?
      - jacquesm 3y ago
        Yes. But they are better positioned to deal with it and will likely survive. But even the IBMs, HPs and Boeings of this world are not immune.
Alex3917 3y ago
> But no less unusual than building a successful company to begin with. Statistically, companies that raise venture capital are vastly less likely to succeed than those that are bootstrapped. Think about it this way: from the perspective of VCs, the most successful apps of the iOS era were Uber and AirBnB. But from the perspective of entrepreneurs, the most successful app of the iOS era was the Flashlight app. Which one do you think was easier to build?
- tptacek 3y ago
  I sort of don't doubt that VC-funded companies are less likely to succeed than bootstrapped companies, simply because bootstrapped companies can keep afloat with consulting and VC-funded companies can't. But vastly lower odds of product success sounds like something that'll need a citation. It seems likely that VC-funded app store pure plays without a recurring revenue SAAS component are much less likely to succeed than indie app store pure plays, but that's because VC is obviously the wrong model for one-and-done app store transactions. If you have a good idea for an app, don't raise for it (you'll have a hard time raising for it anyways).
  - Alex3917 3y ago
    IIRC each time you raise a round, your chances of success go down by ~10x. Can't find a good cite offhand though.
    - jacquesm 3y ago
      Once you're in the VC cycle though not being able to raise another round when you need it is a 100% decrease in your chance of success. So I'm not sure if that follows for any but the first. Essentially you need to keep raising until you either reach profitability at scale, are acquired or IPO, and even the latter won't help you if you aren't eventually profitable.
    - tptacek 3y ago
      Every time you raise a round, the outcome you're shooting for is magnified. If you're raising an A round, you're not getting acquired after your seed; you're rolling the dice on getting a much better outcome. If you're raising a B round, you've got some facsimile of product-market fit, and you've decided to take the company to the point where the only "successful" outcomes are denominated in hundreds of millions of dollars, etc. So it's not surprising that there's a stat somewhere that says "committing to a 500MM sale decreases your odds of success over satisficing with a 50MM sale", right? Very few software companies of any provenance end up going public, but by the time you're raising a C, that's essentially what you're saying you're going to do.
marcosdumay 3y ago
Sure, most initiatives fail. But successful ones are not so rare that you don't expect to see one. If you go all the way until you realistically start a company, you are more likely to succeed than to fail.

71a54xd 3y ago

There are plenty of other ways to exit that don't involve an IPO. Acquisition, selling shares on secondary markets or privately etc... Doing VC the wrong way can make your life hell, but taking all the risk yourself and bootstrapping is in its own right a special kind of hell if you're not careful. IMHO, it's all about time horizon. Working on a startup for 3-4 years without a clear product market fit or some kind of exit is a waste of time unless you're a Jensen (which most of us aren't anyways).

DeathArrow 3y ago
And is worse to fail losing your own time and money than to fail losing VC money. In the second case, you can get up and try it again easier than in the first case.
- 71a54xd 3y ago
  Could not agree more! There are smart ways to leverage VC $$ without losing your shirt. I'd rather buy a car wash business from a boomer with a bank loan than risk my own time with a non VC funded startup.

blindriver 3y ago

90% of all startups fail so the expectation of an IPO when you join a startup is insane.

hinkley 3y ago
And yet many of those companies expect their employees to be excited by that prospect.

c7b 3y ago

According to the same source, 2022 was the second-most VC deals since 2006, and ca the 4th worst for IPOs according to stockanalysis.com. There's clearly a massive upward trend in VC deals, while IPOs are much more stationary. Eyeballing those charts, the average number of VC deals, especially in the relevant period for today's IPOs (10+ years ago), is probably closer to 5-6k, and the average number of IPOs to 250, ie ~5%. Combining this with the folk wisdom that 90% of all startups fail, this seems to suggest that half of the successful startups go public, actually. Lots of things that we'd need to account for (not all IPOs are probably startups, # VC deals != # of startups,...), but speaking about tendencies, the data doesn't seem to support such a strong statement.

jefftk 3y ago

Many startups raise multiple rounds, so I think you're double counting? Don't you need to either divide 16,464 by the typical number of funding rounds or only count, say, series As?

qeternity 3y ago
Most startups don't raise multiple rounds in the same year.
- mwint 3y ago
  They also don’t IPO more than once, usually.
  - beacham 3y ago
    Didn’t know this was even possible. Had to research. It wouldn’t be called “IPO” anymore, but a company can offer subsequent market shares through a Follow-on Public Offering (FPO.) This occurs when a business raises capital in a second round of stock through either dilutive or non-dilutive options. Good to know.
- jefftk 3y ago
  I don't think that matters? (An extreme example to prime your intuition: imagine that there are one IPO and 10 VC deals annually. If every startup raises money annually and there are 10 startups at any one time, then every funded startup eventually IPOs.)
  - qeternity 3y ago
    I misread your comment. Ignore mine.

bawolff 3y ago

Most businesses fail. My intuition is that rate of failure in software, where its much more winner take all, would be higher than brick and motor businesses, which constantly fail. So really, this doesn't seem surprising.

fatfingerd 3y ago
I think it's entering a winner take all market that's strongly correlated with VC money. There's plenty of software companies that outlive restaurants and startup cycles, doing pretty common B2B work, but they are unlikely to accidentally get a valuation based on a probability of winning a winner take all market.

laurex 3y ago

Beyond the issues surrounding the failure rate, it's worth thinking about the extra work to keep satisfying investors, the likelihood that you'll lose at least some measure of control, and fundamentally the ethics of extraction that VC models necessitate, meaning you will need growth even if it's not good for the company or the customers in the long term, and that kind of growth often also means that there's an impetus to ignore the negative impacts on environments, communities, and economies.

dinvlad 3y ago
This very much applies to Cloudflare, otherwise it wouldn’t tolerate hate groups hosted in the name of “freedom of speech” and all that PR bs. Ethics not only takes the back seat, it disappears without a trace. And let’s not forget the ethics of continually selling a large chunk of their shares in the company they publicly believe will continue growing and is profitable.

theptip 3y ago

You’d want to compare this with the base rate of failure for a business venture (ideally across the economy and specifically bootstrapped tech companies). Spoiler: most businesses fail. I’d also believe that VC funded companies are more likely to fail as they are making all-or-nothing swing for the fences plays. But you need to compare to the correct baseline to avoid confusion.

paulddraper 3y ago

1. 2022 was historically low for IPOs. 2. Companies will have multiple rounds of funding before IPO. 3. Acquisitions are more common than IPOs. 4. Yes, a significant number of startups fail. If it were easy everyone would do it.

mvkel 3y ago

Sure, and there were 21,421 M&A deals made in 2022. IPOs are just one of the positive outcomes, certainly the rarest.

Aeolun 3y ago

I think the point is that if you go in with those options as the valid outcomes you won’t be surprised. Not that you necessarily have a very high chance of the last two.