6 ms·

Startup Life 103: Love

8 points by jag 18y ago

swombat 18y ago
Let’s face it, most startups fail. Not just 50% but probably more like 90 or even 99% fail. I remember reading somewhere from a reputable venture capital firm that they would get about 10,000 (yes ten thousand!) business plan submissions in a year. And would invest in 2 to 5. And of the investments, odds are that 1 out of 10 is successful. in a way that employees and founders make reasonable money as opposed to simply the investors. The math on that is 5 plans out of 10,000 get funded and 1 out of 10 of the 5 is a success. 5/10,000.1=0.00005 or in other words a failure rate of 99.995%.* Ah, c'mon, that's hand-waving maths at its worst. First of all, the same 10'000 business plans are submitted to every VC out there. So if there's, say, 100 VCs and they each select 5 start-ups, that's already a 5% rate of VC acceptance, which translates, based on his numbers, in a 0.5% rate of success. But of course, VCs and "success" are not directly correlated. Most successful businesses out there go there without VCs. Many got there without even needing external investment. So actually VC-backed business is probably itself only 0.5% of actual existing business. Even if you were to limit yourself purely to technology start-ups (why should you, though?), there are many start-ups that succeed without VCs. So, basically, this bit of statistics is bollocks... and this is without even scratching the surface of what exactly is meant by "success". The rest of the article, unfortunately, seems equally handwaving... It begins with a point about memory loss (which could have been interesting) but finishes with the true but fairly trite "you should do what you love". Shame, could have been good to explore this whole "we remember only the good times" theme a little more.
- mrtron 18y ago
  How many ice cream glove submissions are there to VCs from people with no ability to follow through whatsoever? 100% of startups that don't start fail. That is a huge impact on the numbers. Personally, I have 100% chance of succeeding with my startup (with my definition of success).
  - jag 18y ago
    Folks - i would rather be roughly right than absolutely wrong and the point was that almost all startups fail to ever deliver any meaningful return to anyone other than investors. The "math" was simply to make a point to get people to think about. Even if its 1% or 2% or even 5% that succeed meaningfully (i.e. founders make a lot and lots of employees become millionaires), that still is a pretty darn small percentage. And the point is that if you don't enjoy, aka love, the journey and challenges of a startup, then you should not join or start one.
    - swombat 18y ago
      I don't see why "founders make a lots and lots of employees become millionaire" is a valid definition of success. I have a friend who ran a web business largely by himself for 4 years and accumulated half a million pounds out of it. I'd certainly call that successful. Based on more reasonable criteria, e.g. made the founder(s) a tidy sum and/or allowed them to pay themselves a decent salary for a while, many more than 5% are successful, imho. As for your main point about loving the journey, I agree with that. I enjoy working on my business and to me that's more important than the money I'll make from it. PS: If you wanted to be roughly right you should have said, simply, "A lot of start-ups fail." No one would have argued with that! :-)
      - jag 18y ago
        that's how i started by saying "most startups fail..."! ;-) and yes there are startups that return a nice amount to a small group. my first company, Trio Development, was sold to Apple. we were 4 guys, no venture funding, and 23 years old and were psyched with the outcome. the point is that way too many people come out to silicon valley thinking their startup is going to be the next google or even a smaller success like a mysql being bought for a billion dollars, and the fact is that most don't happen that way, so make sure you love what you are doing regardless of whether its a big success.
        swombat 18y ago
        Couldn't agree more! :-)
tlb 18y ago
His reasoning is similar to saying that since out of millions of sperm only one will fertilize the egg, the chance of having a baby is 1 in a million. For smart people seriously trying to build something people want where VC funding makes sense, I'm sure the chances of getting funded are above 50% and the chances of succeeding are above 50%.
- jag 18y ago
  uh, if the chances for succeeding were above 50% (of course depends on your definition for success), then banks would fund startups... it's way lower. being an investor in a few venture firms, i have seen the results, and the vast majority of startups in which they invest fail.
  - tlb 18y ago
    Good VC firms generate positive returns from more than half of their companies. Even the average VC generates positive returns from 1/3. This is from a large sample: http://www.markpeterdavis.com/getventure/2008/09/vc-backed-start.html http://www.markpeterdavis.com/getventure/2008/09/vc-backed-s... Bad VC firms, on the other hand, can achieve 100% failure rate. It's not some throw of the dice, it's about (a) choosing the right investments, and (b) making them succeed. If they're telling you that it's normal for the vast majority of their investments to fail, find a better place for your money (and don't taken money from them either.)

8 points by jag 18y ago

Let’s face it, most startups fail. Not just 50% but probably more like 90 or even 99% fail. I remember reading somewhere from a reputable venture capital firm that they would get about 10,000 (yes ten thousand!) business plan submissions in a year. And would invest in 2 to 5. And of the investments, odds are that 1 out of 10 is successful. in a way that employees and founders make reasonable money as opposed to simply the investors. The math on that is 5 plans out of 10,000 get funded and 1 out of 10 of the 5 is a success. 5/10,000.1=0.00005 or in other words a failure rate of 99.995%.* Ah, c'mon, that's hand-waving maths at its worst. First of all, the same 10'000 business plans are submitted to every VC out there. So if there's, say, 100 VCs and they each select 5 start-ups, that's already a 5% rate of VC acceptance, which translates, based on his numbers, in a 0.5% rate of success. But of course, VCs and "success" are not directly correlated. Most successful businesses out there go there without VCs. Many got there without even needing external investment. So actually VC-backed business is probably itself only 0.5% of actual existing business. Even if you were to limit yourself purely to technology start-ups (why should you, though?), there are many start-ups that succeed without VCs. So, basically, this bit of statistics is bollocks... and this is without even scratching the surface of what exactly is meant by "success". The rest of the article, unfortunately, seems equally handwaving... It begins with a point about memory loss (which could have been interesting) but finishes with the true but fairly trite "you should do what you love". Shame, could have been good to explore this whole "we remember only the good times" theme a little more.

mrtron 18y ago
How many ice cream glove submissions are there to VCs from people with no ability to follow through whatsoever? 100% of startups that don't start fail. That is a huge impact on the numbers. Personally, I have 100% chance of succeeding with my startup (with my definition of success).
- jag 18y ago
  Folks - i would rather be roughly right than absolutely wrong and the point was that almost all startups fail to ever deliver any meaningful return to anyone other than investors. The "math" was simply to make a point to get people to think about. Even if its 1% or 2% or even 5% that succeed meaningfully (i.e. founders make a lot and lots of employees become millionaires), that still is a pretty darn small percentage. And the point is that if you don't enjoy, aka love, the journey and challenges of a startup, then you should not join or start one.
  - swombat 18y ago
    I don't see why "founders make a lots and lots of employees become millionaire" is a valid definition of success. I have a friend who ran a web business largely by himself for 4 years and accumulated half a million pounds out of it. I'd certainly call that successful. Based on more reasonable criteria, e.g. made the founder(s) a tidy sum and/or allowed them to pay themselves a decent salary for a while, many more than 5% are successful, imho. As for your main point about loving the journey, I agree with that. I enjoy working on my business and to me that's more important than the money I'll make from it. PS: If you wanted to be roughly right you should have said, simply, "A lot of start-ups fail." No one would have argued with that! :-)
    - jag 18y ago
      that's how i started by saying "most startups fail..."! ;-) and yes there are startups that return a nice amount to a small group. my first company, Trio Development, was sold to Apple. we were 4 guys, no venture funding, and 23 years old and were psyched with the outcome. the point is that way too many people come out to silicon valley thinking their startup is going to be the next google or even a smaller success like a mysql being bought for a billion dollars, and the fact is that most don't happen that way, so make sure you love what you are doing regardless of whether its a big success.
      - swombat 18y ago
        Couldn't agree more! :-)

tlb 18y ago

His reasoning is similar to saying that since out of millions of sperm only one will fertilize the egg, the chance of having a baby is 1 in a million. For smart people seriously trying to build something people want where VC funding makes sense, I'm sure the chances of getting funded are above 50% and the chances of succeeding are above 50%.

jag 18y ago
uh, if the chances for succeeding were above 50% (of course depends on your definition for success), then banks would fund startups... it's way lower. being an investor in a few venture firms, i have seen the results, and the vast majority of startups in which they invest fail.
- tlb 18y ago
  Good VC firms generate positive returns from more than half of their companies. Even the average VC generates positive returns from 1/3. This is from a large sample: http://www.markpeterdavis.com/getventure/2008/09/vc-backed-start.html http://www.markpeterdavis.com/getventure/2008/09/vc-backed-s... Bad VC firms, on the other hand, can achieve 100% failure rate. It's not some throw of the dice, it's about (a) choosing the right investments, and (b) making them succeed. If they're telling you that it's normal for the vast majority of their investments to fail, find a better place for your money (and don't taken money from them either.)