Seeing startup success stories inspires and stirs envy.
I hear about these youngsters hitting the big time. Whatsapp selling for $19 billion. Airbnb, Uber and Campaign Monitor raising in excess of $200 million. Plenty of companies have now achieved $1 billion in valuation [1] [2], while many many more have valuations exceeding $20 million.
What these stories don't show is the exceedingly high rate of failure of startups. Only a few ever reach the pinnacle. My guess is around 1% of startups succeed (achieving a $20 million plus valuation) [3] [4].
Entrepreneurship is harder than a day job. It takes an emotional and physical toll. Entrepreneurs work 50% more hours than the average worker, with half working 50-60 hours a week [5] [6]. Working for yourself is likely to be more stressful and less secure than receiving a regular paycheck. Furthermore, around 50% of entrepreneurs report having a mental condition [7]. Tim Ferriss commented that only a minority of VC backed businesses are happy, founders tend to have a view that life will suck for the next 5 to 10 years and then they will exit, and few businesses actually survive.
What's more is that dilution and taxes take a big hit out of your end value, meaning that it is likely you are left with around 7% of the sale price [8] [9] [10] , which will take say 5 years to build towards. In this case, to achieve a $1 million exit post taxes, you will need to sell your startup for at least $15 million. In a post examining the poor returns of investing in startups, 'Drowning American' commented that his friends have successful exits of around $120 million and own roughly a 10% share, which is equivalent to under 7% of the sale price after tax [11].
Even if a startup achieves a good sale result, entrepreneurs often experience dislocation and disorientation following the sale, including feelings of loss and sadness as their companies gave them a sense of identity, purpose and structure. They also have difficulty finding wealth advisors and find that it takes time to discover the next fulfilling chapter of their lives.
The odds are heavily tilted against you. You better have luck on your side.
On a related note, I must never forget how tough it is for the majority of hedge funds. After working in a hedge fund and interviewing many hedge fund managers, I know that most hedge funds have low assets under management and just match market returns. In fact, around 90% of hedge funds have less than $100 million assets under management [12]. We only hear stories of the funds that make it big, while the reality is that the majority don't make bucket loads of money.
I hear about these youngsters hitting the big time. Whatsapp selling for $19 billion. Airbnb, Uber and Campaign Monitor raising in excess of $200 million. Plenty of companies have now achieved $1 billion in valuation [1] [2], while many many more have valuations exceeding $20 million.
What these stories don't show is the exceedingly high rate of failure of startups. Only a few ever reach the pinnacle. My guess is around 1% of startups succeed (achieving a $20 million plus valuation) [3] [4].
Entrepreneurship is harder than a day job. It takes an emotional and physical toll. Entrepreneurs work 50% more hours than the average worker, with half working 50-60 hours a week [5] [6]. Working for yourself is likely to be more stressful and less secure than receiving a regular paycheck. Furthermore, around 50% of entrepreneurs report having a mental condition [7]. Tim Ferriss commented that only a minority of VC backed businesses are happy, founders tend to have a view that life will suck for the next 5 to 10 years and then they will exit, and few businesses actually survive.
What's more is that dilution and taxes take a big hit out of your end value, meaning that it is likely you are left with around 7% of the sale price [8] [9] [10] , which will take say 5 years to build towards. In this case, to achieve a $1 million exit post taxes, you will need to sell your startup for at least $15 million. In a post examining the poor returns of investing in startups, 'Drowning American' commented that his friends have successful exits of around $120 million and own roughly a 10% share, which is equivalent to under 7% of the sale price after tax [11].
Even if a startup achieves a good sale result, entrepreneurs often experience dislocation and disorientation following the sale, including feelings of loss and sadness as their companies gave them a sense of identity, purpose and structure. They also have difficulty finding wealth advisors and find that it takes time to discover the next fulfilling chapter of their lives.
The odds are heavily tilted against you. You better have luck on your side.
On a related note, I must never forget how tough it is for the majority of hedge funds. After working in a hedge fund and interviewing many hedge fund managers, I know that most hedge funds have low assets under management and just match market returns. In fact, around 90% of hedge funds have less than $100 million assets under management [12]. We only hear stories of the funds that make it big, while the reality is that the majority don't make bucket loads of money.
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