[morgante]

> In the abstract, economic sense, a 30% chance of making $1M is as good as a 3% chance of making $30M is as good as a 0.3% chance at making $300M

I see this repeated as a truism all the time by the anti-VC crowd and it sounds great. But is there actually any evidence whatsoever of it?

The success rate for startups which have raised a Series A is substantially higher than the success rate for startups and small businesses in general. If it were true that avoiding VC funding somehow gave me a 30% chance of building a $1M business, I'd be happy to give it a shot (at least for a year or two). But I just don't see any evidence of that.

If anything, it seems like companies which accept VC money have dramatically better odds of success than other startups. The only reason it seems like VC has a high failure rate is that nobody bothers to write a news article when a random small business fails.

EDIT: Downvoters, kindly provide any evidence that avoiding VC funding increases your odds of success by 10x.

[mcphage]

> Downvoters, kindly provide any evidence that avoiding VC funding increases your odds of success by 10x.

It's not so much, avoiding VC increases your chance of success by 10x. It's not easier to reach a $1M business without VC than it is to do so with VC. However, if you don't have VC, then a $1M business is probably a relatively stable company. But if you do have VC investment, they're looking for a high return on that investment, and so they won't be satisfied with a $1M business. They'll want that $30M business, which is harder, since the goal is so much higher.

[morgante]

If you've only raised enough money to get to $1M, then you probably haven't given up majority control and can choose to keep the business at a small size if you want.

[samastur]

I suspect you might be taking about a different thing. The way I read that line is that if you assume each of those chances is correct (which you have to since they are obviously made up), then they are equivalent in economic sense.

It is not stating that chances themselves are correct.

[morgante]

Yes, the literal meaning of the line is that the expected values of those situations are equivalent (without saying that those statistics are necessarily accurate).

But, based on DHH's other rants and the context of this piece, it's clear that he does in fact think the odds of success are higher without VC. (After all, if he didn't, this line would work against him.)

[vonmoltke]

> it's clear that he does in fact think the odds of success are higher without VC

I think what is clear is that the odds of success are higher for the type of business VCs are not interested in. VCs may be better than those numbers at choosing the winners from that pile, but what of all the "VC-pattern" business that get passed over and almost inevitably fail as a result?

[morgante]

> I think what is clear is that the odds of success are higher for the type of business VCs are not interested in.

Not to me. Would you mind providing any evidence to support that point?

In my experience, the vast majority of so-called "lifestyle businesses" and "small businesses" do fail.

[vonmoltke]

Whoops, misworded that. I meant to say it's clear he thinks the odds of success are higher. It was supposed to be a direct counterpoint to your interpretation.

That said, I do think the odds of success are higher for a non-VC-pattern business. I do not have hard numbers or any sort, though. Of course, it depends on what you consider "success". A VC company has a nice, fairly-cleanly-defined success point in the exit. What is "success" for a business run as a going concern without an exit as a target?

[Mz]

* In the abstract, economic sense, a 30% chance of making $1M is as good as a 3% chance of making $30M is as good as a 0.3% chance at making $300M*

I think the math works mathematically in a very abstract sense but has zero basis in reality.

From what I gather, taking VC money helps improve success rates in part because the process of applying for the money is a valuable experience wrt clarifying what your business is all about, what your goals are, etc AND VCs typically serve as experienced consultants that help guide you.

So I will suggest that if you want success without the financial strings attached of taking VC money, you should try to replicate those parts of the process.