Rand Fishkin Says 77% of VC-Invested Startups are Total Write-Offs for the Investors

I talked with Rand Fishkin this week on the Practical Founders Podcast about what he has learned six years after publishing his book, “Lost and Founder.”

In 2018, Rand published “Lost and Founder” in which he revealed the pains and pitfalls of taking on big VC funding and not winning the prize.

Rand was the founder and CEO of Moz, a leading SEO software for marketers that grew from the active followers of Rand’s popular SEOmoz blog in 2007.

Moz grew quickly to over $30 million in revenue by 2013, having raised $30 million in venture capital investment.

When growth slowed in 2014, the company faced many internal difficulties and Rand dealt with mental health challenges, causing him to step down as CEO.

In our podcast discussion, Rand also shares practical insights from starting his second software company, SparkToro, and doing it entirely differently than he did with Moz.

SparkToro has a small team of three employees and is used by more than a thousand customers. Angel investors have been paid back through profits. It’s healthy for the founders and it can grow steadily and efficiently for many years.

Rand is clear about his views on VC funding math and its effects on founders and their businesses:

“The reality is that 77% of VC-invested startups are write-offs for the investors, meaning they didn’t even return 1X their money. Only 0.9% of funded companies are the ones who hit the unicorn status that we hear about.

“It sucks for the majority of funded founders and their employees whose hard work or options don’t return anything. Our decision to take the VC path at Moz also sucked for our customers. Instead of serving them, we were serving investor needs.

“My current software company, SparkToro, is designed to become profitable, stay profitable, repay investors their share of profits (which we did) and then see what happens. That like how a restaurant or a law firm works.”

That sounds more like a steady small business than a crazy tech startup, but even small software companies have unique leverage with higher margins, crazy growth efficiency, technology superpowers, and much higher exit values.

Where else can such a small team serve thousands of customers and create a profitable and growing multi-million dollar business that doesn’t consume the lives of its founders?

Big VC funding is bad or wrong. The math is just really bad for almost all SaaS founders these days. It’s a practical fact, not a religious act of faith.

Over half of VC-funded founders put in 5-10 years of all-in effort and end up with nothing to show for it.

“Go big or go home” is the funding game you play with most seed, Series A and Series B investors. But very few funded startups get big enough for founders to win a big prize too.

Thanks for sharing your latest insights for practical founded, Rand!

Listen to this wide-ranging conversation with Rand Fishkin on the Practical Founders Podcast.


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