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Is Venture Capital worth it?



Venture capital has facilitated the growth of many companies including Apple, Google and Facebook. But do most startups succeed after they obtain venture capital? In this post, we answer three component questions:

  1. What are the likely outcomes for companies backed by venture capital?
  2. What fraction of companies attract venture capital?
  3. How much work is it to apply for venture capital?

We found that:

  • According to the data of Professors Hall and Woodward, the average venture capital-backed founder exits with $5.8 million of equity.
  • Roughly 1% of companies that aspire to obtain venture capital obtain it.
  • Finding out whether you will receive venture capital can take months to years of work.

What are the likely outcomes for companies backed by venture capital?

For companies backed by venture capital, failure and acquisition are more common than IPO. In 2008, Professors Hall and Woodward presented data on companies that received venture capital in the preceding two decades. In their set of 22,004 companies:

  • 9% reached IPO. At IPO, the average founder had an equity stake of $40 million.
  • 26% were acquired.
  • 34% died or were taken to have ceased operations due to going unfunded for over five years. Their founders have earned only their salaries.
  • 31% had unknown outcomes. Most of these are probably still operating. So far, their founders have only earned their salaries, although a few may go on to achieve a big exit.

Venture capitalist-backed startup outcomes

Figure 1: Venture capital-backed startup outcomes. The dataset is comprised of 22,004 companies that received venture capital from 1987 to 2008. The companies were analysed at the end of that period. Companies that have gone without funding for more than 5 years are considered dead. “Operating/unknown outcome” is a catch all category for companies without known exits. Data is from Hall and Woodward’s The Burden of the Nondiversifiable Risk of Entrepreneurship.

Professors Hall and Woodward used this data to model the earnings of entrepreneurs. They found that a successful exit for the founders is even less likely than it would appear. Although 35% of companies reached IPO or were acquired, they estimate that 75% of founders have received zero income from their equity stakes. This is because in their model, some acquisitions are so small they leave no money for the founders. The remaining 25%, however, received a highly valuable equity stake. Hall and Woodward estimate that the mean entrepreneur exited with $5.8 million of equity. Although the assumptions of their model are open to debate, the overall finding that most venture capital-backed startups fail is supported by the data.

So IPOs are rare, but when they happen, they can lead to very high earnings, and this makes the average earnings of venture capital-backed startup founders very high. This earning distribution resembles our findings of the earnings of Y Combinator founders.

What fraction of companies get venture capital?

So now that we know that getting venture capital is very valuable on average, the natural follow-up question is what fraction of companies get venture capital. We take two approaches to this question:

  1. We estimate the number of startups and the number of venture capital deals
  2. We note how many applicants venture capitalists say they accept

Approach 1. How many startups and VC deals are there?

In this approach, we estimate the number of new US companies, then note how many companies get their first venture capital deal each year.

How many new US companies are there?

We present three estimates for the number of new US companies: i) new nonemployer companies, ii) new nascent companies iii) newly self-employed.

For background, in the US, there are:

  • 6 million employer companies
  • 21 million nonemployer companies
  • 10 million self-employed, aged 25-55

I: New nonemployer companies

  • Estimate: 8 million nonemployer companies are born each year
  • Method: There are 800,000 new employers each year. Non-employer companies are more than triple as numerous as numerous as employer companies and additionally, their birth rate is over twice as high as nonemployer companies.

II: New nascent companies

  • Estimate: There are over 1 million new nascent companies each year
  • Method: There are now 221 million working-aged Americans. The PSED II found that 6% of working-aged Americans are creating a company, and do so with an average team size of 1.7, making 8 million nascent companies. 27% exit the nascent company category each year (either by starting to attract revenue, or by being abandoned). If there are 27% new nascent companies each year, then there are 1 million new nascent companies annually.

III: Newly self-employed

  • Estimate: Over 1.4 million Americans between the ages of 25 and 55 become self-employed each year.
  • Method: There are 100.6 million workers aged 25-55. 90.03% of them are salaried. Each year, 1.4% of salaried workers become self-employed. So there are over 1.3 million newly self-employed each year.

Combined estimate:

  • Estimate: 2-10 million new companies are created each year.
  • Method: These three estimates are rough and partially overlap, so we give a wide confidence interval.

How many of the new companies want venture capital?

Most new companies do not aspire to obtain venture capital. They are corner shops, restaurants, hair stylists and so on. Some researchers have estimated the proportion of new companies that aspire to obtain venture capital:

  • 2-4% of small employers were candidates for venture capital in the 1990s, according to analysis by Ou and Haynes
  • 6% of nascent companies expected their operations to have large scope five years after the company’s birth, according to the PSED II

Overall, we estimate that 2-6% of new US companies are ‘startups’.

How many new startups arise each year?

If there are 2-10 million new companies annually, and 2-6% of them aspire to obtain venture capital, then there are 40,000-600,000 new ‘startups’ annually.

How many venture capital deals are there?

1,350 companies get their first venture capital deal each year.

What proportion of new companies that want venture capital will get it?

If each year, 1,350 companies get their first venture capital deal, and 40-600,000 new companies are founded and aspire to obtain venture capital, then 0.2-4% of those companies will eventually obtain it.

Approach 2. What proportion of applicants to venture capitalists say they accept?

We can make an alternative estimate by reading how many applicants venture capitalists say they accept:

  • David Hornik reports that he funds 0.125%-0.4% of companies whose applications he reads.
  • An employee of Pentech reports that they accept 0.6 – 0.9%.
  • David Rose reports that 0.25% of companies are accepted.
  • The venture capital yearbook reports that venture capitalists accept 1% of applications.

This suggests that each venture capital company accepts about 0.1-1% of applications. By applying to multiple venture capitalists, multiple times, companies can make their chance higher than this. This is broadly consistent with the estimate that 0.2-4% of new companies that aspire for venture capital eventually obtain it.

Overall estimate and caveats:

Overall, our best guess is that around 1% of new companies that aspire to obtain venture capital eventually get it. However, there are some caveats:

The chances of any particular startup obtaining venture capital will depend on the level of maturity of the company. When a company is very young or in the creation process but not yet operating, the chances of obtaining venture capital are much lower than when a company has revenue and employees.

The chances of a startup succeeding will depend on other characteristics, like the product, team and quality of application. For example, graduates of accelerator programs seem to have much better chances – 59% of them receive follow-on funding within 12 months, although though not always from venture capitalists.

Some companies do not need venture capital to succeed, because they are bootstrapped by the owner’s personal wealth, by angel investment, or by borrowing. Furthermore, some companies earn enough revenue that they do not require external investment.

How much work is it to apply for venture capital?

The chance of venture capital is low, while the average payoff is high. So a reasonable question to ask is: “how long will it take to find out whether I can get venture capital?”

Many business activities must be performed before a venture capital application will be taken seriously. To get funded, you usually need to to show that you have a talented team, a prototype and traction. The chance of success may be greater and the preparation time less if you are personally connected with venture capitalists. If one is not personally connected to venture capitalists, it is still important to research venture capitalists before applying; many applications are thrown out because they do not fit the fund’s market area policies.

Another way of considering when companies tend to receive venture capital is looking at the stage of first-time venture capital deals. PWC reports that of 1,350 occasions where a company receives their first venture capital, 225 are given in the seed or startup stage. CB Insights gives a higher figure of 843. This means that at least one third of startups that eventually receive venture capital startups use alternative means of funding to progress through the seed and startup stages. So seed funding can include angel investors and incubators. This means that many companies have to operate for years before obtaining venture capital.

Overall, for founders who are not personally connected with venture capitalists, months to years of work are usually required before funding as obtained.


Venture capital founders earn millions of dollars on average. However, venture capital does not assure success – most founders exit with no equity. Applying for venture capital takes months to years, and the prospects of ever succeeding are low (1% of companies that want venture capital will ever get it). Although applying to venture capital can be valuable, it is not an easy or reliable way to achieve startup success.


About the Author

This article was written by Ryan Carey of 80,000 hours. 80,000 is a platform that intensively researches into how graduates can make the biggest difference possible with their careers, both through overall career choice and within a given field. They work with academics at the University of Oxford, and have given one-on-one coaching to over 200 people. see more of Ryan’s work.

Callum Connects

Benjamin Kwan, Co-Founder of TravelClef



Making music to create a life for his family, Benjamin Kwan, started an online tuition portal and his music business grew from there.

What’s your story?
I am Benjamin and I’m the Co-Founder of TravelClef Group Pte Ltd, a travelling music school that conducts music classes in companies as well as team building with music programmes. We also run an online educational platform which matches private students to freelance music teachers. We also manufacture our own instruments. I started this company in 2011 when I was still a freshman at NUS, majoring in Mechanical Engineering.

I was born to a lower income family, my father drove a taxi and was the sole breadwinner to a family of 7. I have always dreamed of becoming rich so that I could lessen the burden placed on my father and give my family a good life.

After working really hard in my first semester at NUS, my results didn’t reflect the hard work and effort I put in. At the same time, I was left with just $42 in my bank account and it suddenly dawned on me that if I were to graduate with mediocre results, I would probably end up with a mediocre salary as well. I knew I had to do something to gain control of my future.

During that summer break, I read a book “Internet Riches” by Scott Fox and I knew that the only way I could ever start my own business with my last $42 would be to start an online business. That was how our online tuition portal started and after taking 4 days to learn Photoshop and website building on my own, I started the business.

What excites you most about your industry?
Music itself is a constant form of excitement to me as I have always been an avid lover of music. As one of the world’s first travelling music schools, we are always very eager and excited to find innovative ways to a very traditional business model of a music teaching.

What’s your connection to Asia?
I was born and raised in Singapore and I love the fact that despite our diversity in culture, there’s always a common language that we share, music.

Favourite city in Asia for business and why?
Hands down, SINGAPORE! Although we are currently in talks to expand to other regions within Asia, Singapore is the best place for business. I have had friends asking me if they should consider venturing into entrepreneurship in Singapore, my answer is always a big fat YES! There’s a low barrier of entry, and most importantly, the government is very supportive of entrepreneurship.

What’s the best piece of advice you ever received?
I have been blessed by many people and mentors who constantly give me great advice but right now, I would say the best piece of advice that I received would be from Dr Patrick Liew who said, “Work on the business, not in it.” This advice is constantly ringing in my head as I work towards scaling the business.

Who inspires you?
My dad. My dad has always been my inspiration in life, for the amount of sacrifices that he has made for the family and the love he has for us. He was the umbrella for all the storms that my family faced and we were always safe in his shelter. Although my dad passed away after a brief fight with colorectal cancer, the lessons that he imparted to me were very valuable as I build my own family and business.

What have you just learnt recently that blew you away?
You can not buy time, but you can spend money to save time! With this realisation, I was willing to allow myself to spend some money, in order to save more time. Like taking Grab/Uber to shuttle around instead of spending time travelling on public transport. While I spend more money on travelling, I save a lot more time! This doesn’t mean that I spend lavishly and extravagantly, I am still generally prudent with my money.

If you had your time again, what would you do differently?
I would have taken more time to spend with my family and especially my father. While it is important to focus our time to build our businesses, we should always try our best to allocate family time. Because as an entrepreneur, there is no such thing as “after I finish my work,” because our work is never finished. If our work finishes, the business is also finished. But our time with our family is always limited and no matter how much money and how many successes we achieve, we can never use it to trade back the time we have with our family.

How do you unwind?
I am a very simple man. I enjoy TV time with my wife and a simple dinner with my family and friends.

Favourite Asian destination for relaxation? Why?
Batam, it’s close to Singapore and there’s really nothing much to do except for massages and a relaxing resort life. If I travel to other countries for shopping or sightseeing, I am constantly thinking of business and how I can possibly expand to the country I am visiting. But while relaxing at the beach or at a massage, I tend to allow myself to drift into emptiness and just clear my mind of any thoughts.

Everyone in business should read this book:
Work The System, by Sam Carpenter. This book teaches entrepreneurs the importance of creating systems and how to leverage on systems to improve productivity and create more time.

Shameless plug for your business:
If you are looking for a team building programme that your colleagues will enjoy and your bosses will be happy with, you have to consider our programmes at TravelClef! While our programmes are guaranteed fun and engaging, it is also equipped with many team building deliverables and organizational skills.

How can people connect with you?
My email is [email protected] and I am very active on Facebook as well!

This interview is part of the ‘Callum Connect’ series of more than 500 interviews

Callum Laing is an entrepreneur and investor based in Singapore. He has previously started, built and sold half a dozen businesses and is now a Partner at Unity-Group Private Equity and Co-Founder of The Marketing Group PLC. He is the author two best selling books ‘Progressive Partnerships’ and ‘Agglomerate’.

Connect with Callum here:
Download free copies of his books here:

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Before you enter a Startup or before you choose your founding team or new hires read, “Entering Startupland” by Jeff Bussgang



Before you enter a Startup or before you choose your founding team or new hires read “Entering Startupland” by Jeff Bussgang.

Jeff knows how to spot and groom good culture, as the book session was held in Zestfinance a company he invested in and now, “The Best Workplaces for Women” and for “The Best Workplaces for Tech”, by Fortune.

These are the questions during the Book Launch.

How to know if a hire including the founder is Startup material?
Jeff says to watch for these qualities.

First, do the hires think like an owner?
Second, do the hires test the limits, to see how things can it be done better?
Are they problem solvers and are biased toward action?
Do they like managing uncertainty and being comfortable with uncertainty? And comfortable with rapid decision-making?
Are they comfortable with flexible enough to take in a series of undefined roles and task?

How do we know if we are simply too corporate to be startup?

Corporate mindsets more interested in going deep into a particular functional area? These corporate beings are more comfortable with clear and distinct lines of responsibility, control, and communication? They are more hesitant or unable to put in the extra effort because “it’s not my job”.

If you do still want to enter a startup despite the very small gains at the onset, Jeff offers a few key considerations on how to pick a right one.

He suggests you pick a city as each city has a different ecosystems stakeholders and funding sources and market strengths. You have to invest in the ecosystem and this is your due diligence. Understand it so you can find the best match when it arises.
Next, to pick a domain, research and solidify your understanding with every informational interview and discussion you begin. Then, pick a stage you are willing to enter at. They are usually 1)in the Jungle, 2) the Dirt Road or 3) the Highway. The Jungle has 1-50 staff and no clear path with distractions everywhere and very tough conditions. The Dirt Road gets clearer but is definitely bumpy and windy. Well the Highway speaks for itself, doesn’t it?

Finally Please – Pick a winner!

Ask people on the inside – the Venture Capitalists, the lawyers, the recruiters and evaluate the team quality like any venture capitalists would. Would you want to work for the team again and again? And is the startup working in a massive market? Is there a clear recurring business model?

After you have picked a winning team and product, how would you get in through the door?

You need to know that warm introductions have to be done. That’s the way to get their attention. Startups value relationships and people as they need social capital to grow. If you have little experience or seemingly irrelevant experience, go bearing a gift. Jeff shared a story of a young ambitious and bright candidate with no tech experience who went and did a thorough customer survey of the users of the startup she intended to work with. She came with point-of-view and presented her findings, and they found in her, what they needed at that stage. She became their Director of Growth. Go in with the philosophy of adding value-add you can get any job you want.

And as any true advisor would do, Jeff did not mince his words, when he reminded the audience that, “If you can’t get introduced you may not be resourceful enough to be in startup.”

Startupland is not a Traditional Career or Learning Cycles

Remember to see your career stage as a runs of 5 years, 8 or 10 – it is not a life long career. In Startup land consider each startup as a single career for you.

Douglas Merrill, founder of Zestfinance added from his hard-earned experience that retention is a challenge. Startup Leaders to keep your people, do help them with the quick learning cycles. Essentially from Jungle to Dirt road, the transition can be rapid and so each communication model that starts and exists, gets changed quickly. Every twelve months, the communication model will have no choice but to break down and you have to reinvent the communication model. Be ready as a founder and be ready as a member of the startup.

Another suggestion was to have no titles for first two years. So that everyone was hands-on and also able to move as one entity.

Effective Startupland Leaders paint a Vision of the Future yet unseen.

What I really enjoyed and resonated with as a coach and psychologist was how Douglas at the 10th hire thought very carefully what he was promising each of his new team member. He was reminded that startups die at their 10th and their 100th hires. He took some mindful down time and reflected. He then wrote a story for each person in his own team and literally wrote out what the company would look like and their individual part in it. In He writing each of the team members’ stories into his vision and giving each person this story, it was a powerful communication piece. He definitely increased the touch points and communication here is the effective startup’s leverage.

Douglas and Jeff both suggested transparency from the onset.

If you think like an owner and if you think of your founding team as problem solvers. Then getting transparent about financials with your team is probably a good idea. As a member of a startup, you should insist on knowing these things
Such skills and domain knowledge will be valuable. There is now historical evidence of people leaving startups and being a successful founder themselves because they were in the financial trenches in their initial startup. Think Paypal and Facebook Mafia.

What drives people to enter a startup?

The whole nature of work is changing. Many are ready to pay to learn. Daniel Pink’s book Drive showed how people are motivated by certain qualities like Mastery, Autonomy and Where your work fits into big picture. Startups do that naturally. There is a huge amount of passion and the quality of team today and as it grows then the quality of company changes.

The Progress principle is in place, why people love their startup jobs is not money rather are my contributions being valued? Do I see a path of progress and do I have autonomy over work and am I treated well?

Find out more about StartupLand on Amazon

And learn from Zestfinance

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