Most pertinent observation: there isn't much money in startups. The odds truly are horrendous.
Even from YC, the average exit is only $2M. From other accelerators, the total of all exists is well below what most founders want for their own exit.
This might explain why companies are so quick to jump on $10M aquihire deals.
Conclusion? If you want financial gain from a startup, go for sustainable revenue and building a real profitable business. Or get into YC and be one of their more successful bets.
Granted, there may be a lot more exits in the future from some of these accelerators, but it's doubtful that will change the averages by any order of magnitude.
Perhaps we should ask ourselves, why do these investors stick around?
I'm not sure why you think the average exit is $2 million. Are you getting that from the column titled "Average $?" If you mouse over that title, you'll see it refers to the average amount raised.
He may be getting that figure from the $950M "$ Exits" figure divided by 450 companies -- but that's incorrect as not all 450 companies have had exits.
I'd imagine that probably 45 companies have had exits, making the avg exit value around $20M, which sounds pretty realistic to me.
That's correct, except most of the companies that have not exited never will (many have already failed,) and it would take quite a few 100M+ exits to significantly skew that average.
Those assumptions could be wrong, but I don't think more than, say $1B in exits, can be expected from the existing YC companies, bringing the average YC exit to $4.5M - not much difference. Even an additional $5B in exits would only bring the average to $11.1M. Most of that would probably come from a few startups (think AirBNB), unfairly skewing the average further - we really should be talking about the much lower median.
Getting into YC brings the average from pitiful to poor. Note there is not a single 100M+ exit that has occurred from any other accelerator listed.
We also have to factor in founder dilution, which is usually massively higher in these big exits, and also that exits are split among the founders. The expected exit for an individual even going through YC is likely sub $1M taking those factors into account.
My point is not that startups are a bad choice. I am even an occasional angel investor. This does reinforce the frequently made observation that startups are not a guaranteed, or even likely, road to riches. Startups are for people who like startups.
It's pointless to talk about the median outcome, because it will almost certainly be zero. It would be very surprising if we had a success rate over 50%. In fact it would probably be bad; it would probably be a sign we were too conservative.
Your estimate of the total value of YC companies is currently off by about 10x.
Your belief that startups are a mediocre way to make money reflects a misunderstanding of probability. In fact they are a very good way to make money for some people, and a terrible way to make money for most people.
I don't think it's pointless to talk about median outcome. The median outcome or worse, by definition, is what most entrepreneurs will achieve, and as you say, that's likely zero even for YC companies who based on this data have an order of magnitude higher success record.
Sorry if my estimate is off - another $10B in exits would change the number significantly, and maybe the filter and assistance of YC is sufficient to change the expected outcome. That doesn't so far seem to be the case with other accelerators.
As you say, "for most people," startups are a terrible way to make money. Based on this data, "most people" is almost all people that get into almost all accelerators. I do think that's an important, though perhaps not new, deduction from this data. It's even more important for people hoping to make money by joining a startup as a non-founder, where the financial upside is so much lower.
I'm not sure what you mean about a misunderstanding of probability. Certainly there is a large amount of both luck and character that determine the outcome for an individual, and that can be summed up with probability, especially for any given startup, since as at a poker table, luck is relatively stronger short term, and character overtakes luck in the long run.
The misunderstanding of probability is analogous to believing that if 3% of the population is over 6' 2" tall, the probability that I, when measured, will be over 6' 2" is 3%. In fact it is 0%.
The overall success rates for founders come from averaging the rates of a few people for whom the chance of succeeding was quite high with a lot for for whom it was zero. Which means they have little predictive value for individuals.
Indeed probability is only useful when there is uncertainty. When there is certainty, probability is nonsensical.
While I think YC may be quite adept at choosing only people over 6'2", people in general are not very good at knowing if they are over 6'2" in entrepreneurial talent. We know people are very bad at judging their own competence, and generally vastly over-estimate it. There is no tape measure for entrepreneurial competence. Unfortunately, I'm not sure anyone, even the YC partner group, is able to reliably measure future success, though I'm sure you are much better than most investors.
Further, an enormous amount of luck is involved, as demonstrated by the large number of one-hit-wonder entrepreneurs, the vast range in outcome for similarly talented people, as well as the large number of impressive entrepreneurs who never really succeed.
So I do think it makes sense to apply probability to your chance of success, no matter who you are. Very talented entrepreneurs still have a high chance of failure, and there is also a good chance that someone is not as talented as they and others think they are. We all know people of both types.
I assume you divided the exit value by the number of companies to come up with something around $ 2M.
First, not all companies exited, therefore "expected exit value" is probably much higher (and I would rather look at the median value to have a better ideas of the odds).
Additionally, the purpose of building a company isn't to "make an exit", it's to build a business. "A startup" is, to me, the early phase through which many business go.
The journey is more important than the destination. Building a business is a life-changing experience.
You will become rich, if you accept that wealth comes in different forms; the irony is that pecuniary wealth will be more likely to happen if not sought after.
I get the gist of your statement and don't entirely disagree on how to optimise your own outcome as an individual, but I also think you're ignoring that most seed accelerators are a relatively new, and there's a lot of shareholder value out there that hasn't seen an exit. Case in point - add a Dropbox and AirBnb exit and suddenly the number triples...
Your conclusion doesn't follow unless you have a chart showing the average outcomes there are better. There are a lot of smart people betting their own money that you're wrong, after all.
I've recently added a feature where I grant permission for users to enter/edit information on their accelerator and their accelerator startups to Seed-DB. It's a manual process, and I only give this permission to accelerator program founders or administrators. But if that's you, please get in touch. ([email protected])
I just wanted to point out many of those programs are < 4 years old and four years after YC's founding nearly everyone was skeptical of them. It just takes a while to a) get a few winners b) get a market value on them.
If the powerlaw of startup outcomes is accurate, nearly all of these programs are too young and too small to have telling data.
The median $ seems incorrect -- for Y Combinator, it seems to be the investment just from YC, and for other programs, it seems to be their entire raise from all sources.
I believe most YC companies raise external capital on top of YC; there has been START and YC VC from $80k to $150k, and according to pg, a most YC companies that need to raise capital have been successful doing so (at least for the past few years).
Yes, it's way off. It's based on Crunchbase, which is very incomplete about funding unless investors make a deliberate effort to log rounds there. The actual median up to w2012 seems to be 850k. (We don't have fundraising data from the summer batch in our system yet.)
Exactly; where the majority of startups in an accelerator don't have funding data in Crunchbase, it defaults to the funding that startups get from the accelerator itself. (This is why the list of accelerators defaults to sorting by average funding versus median funding.)
There were a few different ways I could have calculated median funding. The first is just looking at the values of startups with funding data, but this would have only identified the median funding of the "winners" of a program and thus isn't as valuable. So I calculate median by using funding data from Crunchbase for each startup, and where there's none I use the original funding from the accelerators.
If anyone has any questions, comments or feedback, my e-mail is plastered all over the site. ([email protected])
Personally, I would just list the funding provided automatically to each company (complicated in the case of YC since it varies with team size). I'd almost exclude the START and YC VC notes from YC, as they're not mandatory.
A more useful stat is "able to raise follow on funding" or "still in business after a year", I think.
I import each company's funding data from Crunchbase, whether that's a convertible note or an equity round. My comment above was just regarding the algorithm for calculating median funding.
I've been thinking about ways to figure out if a company is still in business, and will be implementing them over the next few months. (This is still a nights/weekends project for me.) One of the easiest ways is just to display a company's twitter/blog feeds on their Seed-DB entry. If they haven't been updated in a long time, that implies they're no longer in business.
Funny table, but does not showing anything about the success of those businesses or the VCes. As far as this table shows, each of these companies may have been a total failure, which I am sure is not true.
There should be columns like "profits", "revenue", "median profits", "number of profitable companies". Such type of columns will show how successful are both the companies and the accelerators.
Also the "average lifespan" and "number of companies still operating" could be other interesting metrics that provide an insight on how sustainable are those companies.
Founder of Seed-DB here. I'd love to get numbers on revenue, profits, etc. but it's essentially impossible to do this for private companies. Even average lifespan is difficult because death is often not a single day, but a slow transition.
Is it still accurate for TechStars Cloud? (I'm intrigued by the concept of thematic incubators. Particularly, what happens if you pick a theme that either eats the world (cloud) or dies (TechStars Flash would not be something I'd invest in right now...)
Yes, the numbers for TechStars Cloud are accurate. If you're interested in learning more about the themed program, feel free to contact me and I'll answer any questions you have!
Even from YC, the average exit is only $2M. From other accelerators, the total of all exists is well below what most founders want for their own exit.
This might explain why companies are so quick to jump on $10M aquihire deals.
Conclusion? If you want financial gain from a startup, go for sustainable revenue and building a real profitable business. Or get into YC and be one of their more successful bets.
Granted, there may be a lot more exits in the future from some of these accelerators, but it's doubtful that will change the averages by any order of magnitude.
Perhaps we should ask ourselves, why do these investors stick around?