Are VC externalities creating new opportunities?

The entrepreneurial journey is risky in nature. Misaligned incentives with investors along the way can exacerbate the downside. Thankfully, alternatives exist.

⚠️ Risk: according to data from Harvard University, roughly 75% of startups fail. When considering asset liquidation as failure, the rate stands at 30-40% among high-potential U.S. startups. When including falling short of projected ROI, it rises to a whopping 95%. We often hear about high-profile venture-backed growth stories, but little is known of the thousands of startups trying to navigate life after it has become clear that a venture-scale outcome is out of reach.

🥊 Impact: the repercussions of failure disproportionately affect entrepreneurs. Beyond the loss of investment, they face personal setbacks – mental health issues, financial hardship and reputational hit. Statistically, less than 1% of venture-backed companies reach IPO, but many that don’t could have achieved success had they not been pushed to scale beyond their natural capacity.

📊 Misalignment: venture investors don’t have time or bandwidth to nurture mid-stage businesses that do not track Power Law dynamics. Their opportunity cost is too high. This leads to an inadequate level of operational guidance and financial support at a time when founders need it the most.

📏 Extensions: per CB Insights, ~7,000 extension deals were struck by venture-backed startups worldwide in 2023. While these insider rounds offer temporary relief to founders and protect lofty valuations, they rarely address fundamental operational misconfigurations and market potential, often merely delaying the inevitable downfall and ultimately hurting founders’ chances.

In short: most venture-backed businesses are hard to time, conceptually unproven or operationally frail from inception, and naturally end up failing. Very few emerge as market disruptors and winner-take-all outcomes. But what about the middle cohort – companies with product market fit and developing customer loyalty that fall short of exponential growth trajectories?

These businesses, with great founders, dedicated teams and product expertise can thrive with venture buyouts: a financial partnership and operator-led approach that optimizes resource allocation and go-to-market while preserving equity upside. Founders deserve a better shot at success.