The chart below says, “You should raise tons of VC funding and try to be valued over a billion $ by those private funders.”
This chart also can say five other things that founders should understand.
1) There is a place for VC funding. Some of these companies did well on their VC funding investments, which will pay off at some point.
But most of these won’t do well for the founders or investors. Most unicorn tech companies from 3 years ago haven’t raised another round or exited. They are stuck and probably won’t make it to a good exit.
2) As you can see, most of these unicorn companies raised more than four rounds of institutional capital. That’s good for VCs, but the founders and employees usually end up with less than 20% of the company.
Many founders have surely cashed in some chips with secondary stock sales in these funding rounds, but employees usually can’t do this.
3) Did you see the first bar in the chart? A non-trivial number of companies got there without raising any institutional funding or very little. This isn’t the majority here, but it’s not nothing.
If you saw this chart in “risk-adjusted founder equity value,” the first two bars would be as big or bigger than most of the other bars. Risks go up the more funding you take on. It’s not just about dilution.
4) The total number of billion-dollar companies on this chart, going back years, is 1641. That’s a lot of billions, right? Yes.
But it’s not a lot of companies. VCs have invested in 5,000-10,000 companies a year for the last 10 years. So the billion-dollar “winners” are just a very small percentage. 98% of VC-funded companies don’t get there, meaning 99+% of all software companies won’t be unicorns.
5) Where is the chart for the other 99% of all software companies around the world? You don’t see it. It’s not that interesting to tech media, and the numbers are not public.
Where is the chart for the majority of VC-funded companies that didn’t pan out and founders didn’t win any material prize? You don’t see that either.
There’s a place for VC funding and unicorns, but it’s a very small place with odds that aren’t that great for founders.
That’s what I think. What do you think?
