Startup Failures
If you haven’t had your share of failures you aren’t working hard enough. I have had my own spectacular failures. It is important to understand that VCs expect failures to tune of 1/3 of their investments. Fred Wilson explains to his limited partners that,
“When we raised our first Union Square Ventures fund, I told prospective investors to expect 1/3 of our investments to fail. I always like the 1/3 rule, which is that 1/3 of the investments will fail, 1/3 will under-perform expectations, and 1/3 will meet expectations. Meeting expectations means 5x to 10x on our money.”
Do you get it? Your deal has to appear to a VC like a ‘homerun’. He can’t spend his time investing in 3x deals or his limited partners won’t be interested in working with him anymore. You need to understand this because if he isn’t working for 10x returns he won’t make it. Your business might work great with a 3x return ~ you might be very happy with a 3x return, but if you are going the VC route you will have to make decisions based on the ‘let it ride’ principle. Get it? You are in Vegas and have all your money on black, to make the VC win you have to let it ride over and over to get the 10x he is looking for. This is VERY risky. Only 1/3 of founders in VC funded deals can expect a return, the other 2/3 will be lucky to get a paycheck.
