I saw an interesting post by a bunch of hackers discussing what it would take to get out of the game or fu**-off out of it as they put it. (http://www.danielharan.com/2008/09/04/vc-part-2-fuck-off-money/)
Which startup odds do you prefer?
50% odds of making $1 million
20% odds of making $20 million
Assume the work involved is the same, and that in both cases that the alternative is a complete loss. If you’re economically rational, you’ll compute the “expected value” of each investment.
50% of 1 million => 500k
20% of 20 million => 4 million
VC has to be rational to maximize return for their partners. They have to be rational. And that’s the crux of the problem: our incentives are not aligned.
We don’t have to play by the same rules. Just as the cost of starting a company has been going down, it’s also become less risky to pull off small successes.
20 million isn’t 20 times more useful than 1 million. It won’t make you 20 times happier or let you be 20 times more effective.
It raises a point I often argue with my friends about how to raise funds and whether a home run is always the smartest option for a business.
For example you can build a perfectly good, profitable business on angel funds and sell it for a smaller amount with less risk and no VC ratchets.
However, if you want to make a lot more money and don’t care about the odds being way lower too then VC can be the best way to go, you get more runway and pressure to get the much bigger exit and IF that pays off you will hopefully get a bigger pay-day. This assumes you don’t get fired or diluted by the VC along the way!
In the end it comes down to what you really want out of life and if you measure the money how much do you really need to live off.
If you know that then you can work out your fu**-off money exit needs!
Take a look at my book and work out your life goals first, then you can work out what’s best for you!