

These numbers will remind you that doing a startup is brutal - jaoued
https://www.techinasia.com/numbers-remind-startup-brutal/

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onion2k
These particular numbers don't remind me that doing a startup is brutal. They
tell me that investing in a startup is quite brutal, but _doing_ a startup is
about so much more than the money and the (potential) exit. If the possibility
of failing was a reason not to do a startup then no one would _ever_ do a
startup.

To have the opportunity to work on an idea that you're authentically
passionate about, that you truly believe in, _that gets you out of bed in the
morning and keeps you awake at night_ , even at a poverty level income, was
completely worth it (for me). I have a litany of failures behind me and
absolutely no regrets. No personal regrets anyway. I'm sorry that I failed the
people I've employed and I'm a bit sorry that I've lost investors some money,
but I'd do it again in a heartbeat. Hopefully without failing this time.

~~~
free2rhyme214
You're spot on.

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a_gentle_autist
Some personal numbers, from 4 years at a SV startup (now at a larger company,
couldn't take it anymore)

Over four years:

Total compensation: 80K (10-99) Debt: 8K Credit Card, 25K IRS Equity: ~1%
(worthless probably, at most 50K)

Not worth it.

~~~
imjk
Are you saying you were only paid 80K over four years?

~~~
a_gentle_autist
Also -- the IRS debt comes from not paying taxes over those 4 years, because
the only way you survive in the Bay Area making that kind of money is to not
pay your taxes.

~~~
gamblor956
Not sure this makes sense. If you only made $20,000 each of those 4 years, you
would have been below the poverty threshold, and you shouldn't have had income
taxes owed (after credits and deductions).

If you're saying that you made $80,000 for each of those 4 years...then you
deliberately lived beyond your means and you deserve to have the tax debt
hanging over your shoulders.

~~~
nostrademons
Yeah, something seems dodgy there. $20K income is well below the EITC
threshold. I just stuck it into BankRate's tax calculator [1], and it claimed
total tax owed was $1616 without any further deductions, so it's quite
possible the OP owes nothing. He should consult a qualified tax attorney or
accountant; much of that IRS debt may not really exist.

Also, if I understand his post correctly, it seems like he was paid as a 1099
contractor the whole time but received equity and operated like an employee.
There's likely something highly illegal about that (on the part of the
startup), but it's not worth going after them because I doubt they have any
money.

[1] [http://www.bankrate.com/calculators/tax-
planning/1040-form-t...](http://www.bankrate.com/calculators/tax-
planning/1040-form-tax-calculator.aspx)

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kstenerud
"Expara probably paints the most accurate picture since it’s been around
longest. 13 out of 16 of its investments from 2007 to 2011 were written-off.
That’s a failure rate of 81 percent."

Am I reading it wrong? In the chart it says 27 total, 13 dead. So around 50%.

"Douglas Abrams, CEO of Expara, explains that its two full exits made 2 x and
36 x the invested capital, while one partial exit earned the firm a cool 246
multiple. That’s a staggering average return of 95 x."

This seems like shaky math as well. What about the others that returned 0x?

~~~
gizmo
> This seems like shaky math as well. What about the others that returned 0x?

They're either complete write-offs, or a small percentage of the unused
capital is returned to the VC fund. I'm pretty sure the author didn't mean to
imply that the return on investment for the entire VC fund was 95x. Any VC
fund has a bunch of writeoffs and a bunch of homeruns. The homeruns have to
compensate for the writeoffs. Looking at the average return for successful
exits is a reasonable metric because if the successful exits are only 5x then
clearly the fund is a hopeless position. And if there are a number of great
exits it doesn't matter much if the fund has many duds or only a couple. The
average-return-on-exit metric isn't great either, because the largest exits
matter most and the average doesn't properly reflect that.

------
michaelochurch
The part that I find scandalous isn't that businesses have a high failure
rate. That's been true since antiquity. It's that VCs are, to a large degree,
responsible. They don't _have_ to play get-big-or-die. There will be a nonzero
failure rate no matter what, but it doesn't need to be this high. To a large
degree, it's the VCs' fault for pushing their companies to take unreasonable
risk. Often, worse yet, that risk is often counter-innovative... it's not
creative risk but "hire 200 people next year and do Pearson's grunt work in
large amounts" risk.

At the low end of the risk spectrum, you have small consultancies with minimal
overhead and businesses with secured assets that you can take bank loans for.
At the high-risk, high-growth end, you have companies that will either be 100
times their current size, or dead, inside of 3 years.

The mid-risk, mid-growth businesses, targeting 20-60% annual growth, tend to
be too risky for bank loans but not interesting to VCs. Those will be 5-10x
(at 10 years) most often with an occasional 200x, but rarely a 10,000x.

The thing is, the goal of the game shouldn't be to maximize your chances of
getting (extremely rare, and difficult to get in to) 10,000x's. It should be
to make money. If you can do that with a string of 5-10x results and a lower
(say, 30%) failure rate, instead of swinging for 10,000x and having a 90%
failure rate, then maybe you should. Not only are those 10,000x's rare no
matter what you do, but unless you're extremely well-connected you're not
going to be able to put more than a small amount of money into them.

Why is the Valley like this? Ultimately, it's not about making money. It's
about the VCs' careers. You get a lot of credit, as an individual, for having
"been in on" Facebook or Twitter. It's difficult to predict the successes in
advance, which is why you get the creepy co-funding culture, which doesn't
make money for anyone (in fact, they make less money because of it, because
they fund lower-quality stuff) but spreads around the career credit of being
an early investor in something that hits big.

~~~
tlb
You have indeed identified an underserved market: capital for mid-risk, mid-
growth companies. You could serve that market by organizing a venture fund.

Keep in mind: it's not like nobody ever had that idea before. Many people did,
and proceeded with it, and discovered something that caused them to either
give up or pivot to the traditional (high-risk, high-growth) VC model instead.

Some of the reasons why they didn't stick with mid-risk, mid-growth are bad:
vanity, careerism, principal-agent problems. I believe there are some good
reasons too, but you might be able to overcome them.

It would be really great for the world if you figured this out. Seriously, I'd
encourage you to try. There are ways to start small and have the financial
mechanics taken care of, such as an AngelList syndicate. If you succeed, you'd
be enabling hundreds of people to have rewarding and more stable careers.

~~~
michaelochurch
"I believe there are some good reasons too"

What do you think those are?

I think that one issue is that it's harder to manage them, especially because
they tend to be high-skill niche businesses. The thing about social media is
that any fucking idiot has, at least, the technical knowledge to run one. This
makes them attractive to bikeshedding investors and also ripe places to put
underachieving friends who are owed favors.

~~~
tlb
The economics are marginal. You need to put in a large amount of money over
long time periods before you get any returns at all, so if those returns
aren't great, you might end up losing money and not being able to continue.

A large portfolio of mid-risk companies is not low risk, because they are
correlated in various ways. For example:

    
    
      - macroeconomic shocks can hurt your entire portfolio.
    
      - your entire portfolio might have a selection bias
    

High-beta funds can let go of companies that fail. But if you're counting on
most companies not failing in order to make money, you'll have to step in and
rescue some companies where the founders break up, or give up, or move on to
better opportunities. It's very painful to recruit and install new management.

