Your time is precious, so don’t waste it living someone else’s life. — Steve Jobs

Nowhere in our society do we have more talent and raw brainpower working for bargain bin discount prices. How low? 50% of founders are making less than $6 an hour. More on these calculations later...

Founders of course are guaranteed nothing, and that’s the point. We sign up for the opportunity to earn large paydays while building game changing solutions.

So if it’s all consensual, then what’s the problem? Well, it’s not really. Those who have built venture backed businesses know we are not playing by our own rules. Once you take on institutional funding, the game changes.

I raised $15 million dollars for my last company led by a top West Coast firm. My company had tremendous success out of the gate. We reached a million in revenue in the first year and tripled that each of the next three. At that point the board was looking at me, as the CEO, to go out and raise another $20 million. When I failed to show excitement for that plan, I was eventually fired. The experience helped to set me off on a new path, which I detailed in a previous post titled Lost on Purpose.

A few years have past and I hold no ill will. Our investors are great guys and were doing their job. But that job is to maximize the returns for their investors. Homan Yuen in his VC Math post clearly shows why VCs are almost exclusively focused on unicorns (or those rare $1B+ exits). For them to generate an acceptable financial return, they typically require 2 to 3 of them per fund. “Small” $50 million or $100 million dollar exits do little for keeping their investors happy.

As a result, the system has grown to view “success” as little short of a billion dollar plus exit. Look at this post by Hiten Shah titled “Why Trello Failed to Build a $1 Billion+ Business”. While he does give some acknowledgement to the team for selling for $425 million, the article focuses on where they went wrong.

The current system — The Founder Lottery

Yesterday’s home runs don’t win today’s games. — Babe Ruth

As founders, we are essentially forced to play the lottery. The odds of a venture backed startup becoming a unicorn is less than 1%. Factor in that less than 50% of startups even raise venture capital and you are looking at less than a .5% chance from Day 1. So less than five out of every 1,000 founders “win” by today’s rules.

But what happens to the other founders? Depending on how much the company has raised and the preference they’ve given to their investors, it will often take $100M+ exits for the founders to see any significant money. Those exits are also rare. Approximately 57 out of 2,196 founders of startups will achieve those, or 2.6%. For the other nearly 98%, things look quite different.