In the spring of 2022, after a particularly difficult startup experience, two seasoned and successful founders paused to reflect on their several decades as entrepreneurs. Then, they took a hard look at the data.
Everyone knows the failure rate of new ventures and the poor returns for investors in light of the high risk. The widely touted figure is somewhere between 75% and 90% of funded startups eventually fail without producing a return for investors. The average return across the entire category of venture capital is less than the S&P 500 for the last twenty years.
If investor results are challenging, the results for founders are often worse. According to one study of 212 funded American startups by professor Noam Wasserman, fewer than 50% of founders remain in control of their own companies by the time they are only three years old. In year four, just 40% of founders remained. Fewer than 25% of founders eventually lead their companies to an exit. Yet even with the deck stacked against them, founders still sign up for the entrepreneur journey. They do what they have to do.
Today's early stage model doesn't work for investors, it doesn't work for founders, but it also doesn't work for the public good. Imagine if railroads, factories, the Internet, or any of the major technological achievements of the last century had to be built strictly in the ten-year investment horizon of a venture capital fund? They would have never happened.
They concluded there must be a better way.
