Jason Fried: “Venture capital money kills more businesses than it helps”

There is one more additional thing: graft also takes effort, the easy things are also easy to control. The founder can either work on the startup or on the extractions. The point is to make the extractions relatively less attractive than the success of the startup.

I guess, but why steal $500K a year, when you can steal millions? Certain insider deals from a certain very large unicorn are what I'm thinking about.

This thread isn't about businesses in general, it's about tech businesses. Most of those businesses are in commodity markets like restaurants, hair salons, auto body shops, professional services, and other local businesses. There are geographic barriers to entry for one company taking over the whole market in those industries (not that that necessarily stops them - witness McDonalds and Wal-Mart). There are no such barriers to entry on the Internet. The Internet is new, which means that a number of niches sprung up in the last few years. Most people I know who've capitalized on them make a good living for about 5 years and then find that customers dry up as the industry matures, the next technology platform arrives, and the industry leaders eat up all the rest.

From my understanding, VC funds as an asset class don't perform that well. A few of them hit the jackpot, but if someone spreads their bets across a number of funds, I would be surprised if they beat the market. So keep that in mind when comparing returns.

Another thing to consider, is that focusing on the 'middle road' does not necessarily preclude a company from swinging for the fences, it merely sets the incentives such that getting to profitability sooner is advantageous. They do this by encouraging dividends as a form of compensation, but the company still has the option of going the VC route.

So if anything, I think this structure is the best of both worlds. If a company can take ~$100k in seed for ~10% in equity and turn that into a small business worth $10M, that is a 10x return. But if it looks like they are on to something bigger, they can raise another round and keep grinding.

As a VC? The unicorn fund. Which agrees with what the market has been supporting this last decade.

Given the same investments in each, the unicorn provides a bigger return. Because of economies of scale, it's more likely to gain traction and continue its success, especially in a place like tech where marginal cost is almost non-existent. Not to mention the overhead on managing a single investment vs. many. Not to mention the administrative costs of 5 companies vs one. Not to mention the benefit of choosing a company based on your interests and abilities, since most VCs have a more hands-on role than traditional investors.

It just aligns with the culture; the whole idea in most tech startups is to leverage economies of scale as much as possible. Often their profit per customer is tiny. They're relying on millions of people using the product.