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Comment by corry | Hacker News Reader

Throwing some #'s up - just picking up % that are probably on the low-side for the later 2 exit types:

1) 100% of a 10M exit = $10M

2) 10% of a $100M exit = $10M

3) 1% of a $1B exit = $10M

Path is (very) arguably the easiest on the $100M exit? You likely raised outside funding, had a big enough market, grew your team and didn't have to slow-play everything, and still get a decent exit. Paid yourself some salary during that time. As the article says, lots of M&A in the ~$100M range.

$10M exit - a lot of risk, probably slower growth, bootstrapped, etc. Tons of small exists happening at that level too, but also more competition.

$1B exit - personally this seems hardest, even if probability of each occurring was the same. The size of team, scaling issues, etc all required. Of course you'd almost definitely own more than 1% at IPO.

Then stack your odds of success against those figures. Still feels like $100M is the optimal balance of risk/return.

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Looks like no one in the thread addressed the elephant in the room, so I’ll bite and say the crass unsayable: while you are fundraising a $1B dice roll, you likely have options to take money off the table personally, such that even in the failure case your $1B company has a comparable or better personal outcome than the success case of the other two options. Also, while you still running a $1B company and has not hit the ground, the position is going to be more prestigious and profitable than the other alternatives. So, yeah, employees be damned; personally for the founder the #3 alternative is almost always clearly better in the real world.

One should never forget that majority of SV startups are not/will not be building sustainable businesses but building some technology and playing a short-term financial game. It’s easy to lose sight of that.

Financially, yeah, you can cash out and get similar liquidity to what you'd get from an exit while keeping plenty of upside. But investors are only going to provide that option in the situation where they like you as a CXO and think you're the right person to continue growing the company to a $1B+ valuation, which is just a nice way of saying that they'll expect you to continue to pour your heart and soul into the business, work long hours and think about the business 24/7. If you sell your $100M startup to a strategic acquirer, generally you won't still be CXO. You'll get a comparatively chill director-level job, or you can quit relatively quickly and just find a beach somewhere.

Good point for sure. It was also relatively common for founders to take a bit off the table at Series B (or even Series A's) along the $100M path too.

Both of which skew again towards preferring those outcomes to the bootstrapping one.

#3 is definitely better in terms of your longer-term ability to make money as well. The personal brand from founding a $1B startup is very monetizable (if you must / want to) after acquisition/IPO, or at the very least to raise seed money for your next venture.

Whether or not this calculus factors into founders' decisions to start a company I can't say. I doubt the mercenary motivation is as common as you suggest, just among the founders I know at least. I think the lure is more to get to build something yourself and 'not have a day job' / sense of adventure, and the potential for money is just kind of a nice cherry-on-top.

> I doubt the mercenary motivation is as common as you suggest

I did not mean to imply that most founders start companies to scam the investor base (who turns out to be sophisticated enough to deserve it even if so). It is just how the incentives in Silicon Valley lead you to operate. Basically SV model bribes you such that the #1 outcome would not even be rational, by design; i.e. you build a cash flow business, someone basically tells you that they are willing to give you best-case scenario upfront and ask you to come work for them and potentially make billions for them, so it is bascially a win-win for pretty much everyone except sometimes perhaps employees and customers. The natural outcome of the model means there will be a bunch of businesses with low probability of achieving their goal sustainably, by design.

This does not require the founder to be/act evil. Nor do I think the existence of such model in the world is a bad thing overall, even if it leads to some scams/useless companies. It is very good net net, as the vast majority of the world is overly conservative in capital allocation (a la Warren Buffet) to balance it out.

I suspect potential 10M businesses have higher odds of a positive outcome, but hitting 100M with outside funding is so much faster people can get more attempts.

That's an interesting argument that I hadn't considered. Going for a $1B exit in some ways de-risks you as a founder because you get the press, attention, and connections but with less actual pressure to ultimately succeed since the bet is so big. I'm not saying it's not hard, but a harder path may be turning down the investment (you crazy fool!) to focus on building a really great cash machine in the $10m - $100m range.

Possibly - my instinct is to agree with you - however, I also think the 'time factor' is working hardest against the $10M business. In the $100M case, you raised VC and are trading money (someone else's money) for time - you get there faster, you can take more risk, etc.

"Time kills all deals" can be extrapolated into "Time kills all companies".

On the other hand, in the time it takes you (even with VC rocket fuel) to get 1 company to $100M with 10% ownership, you can probably start 2 or 3 smaller business that could end up at $10M.

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