In the world of venture capital, aiming for unicorns—startups that reach $1B+ valuations—isn’t just about ambition, it has been the norm for the past years.
For VCs, it’s a necessary strategy, considering that 9 out of 10 of their investments will likely fail and 99% of them are ok with this, in fact this is how it works.
100x? - Statistics show most startups won’t make It
In this article I wanted break down the math behind VC expectations, why failure rates are accepted, and what this means for founders trying to succeed in the high-stakes VC game.
1. VCs Expect High Failure Rates
- 9 out of 10 startups won’t succeed – VCs know that most of their portfolio will go to zero or break even.
- Failures are part of the strategy – VCs accept that these losses are the cost of hunting for a single, massive win.
- It’s not about getting every investment right – Instead of focusing on success rates, VCs focus on finding that one unicorn that can make the fund profitable.
Note: it's important to say 9 out 10 they invest in, and this is not representative of the mass of startups at any point in time. Jsut the ones they decided to invest.
2. The Math Behind the 100x Goal
- The 3x Return Expectation – Limited partners (LPs), who invest in VC funds, expect at least a 3x return over 7–10 years. This means VCs need one or two 100x wins to cover all losses and deliver on these expectations.
- Balancing Losses with a Bang of a Win – A 100x return from one startup can offset losses from nine other failed investments, making the entire portfolio profitable. Obviously VCs do not invest in just 10 startups, but way more.
- Why Moderate Wins Aren’t Enough?– with a 10x or 20x return from a single startup often isn’t enough due to management fees, dilution over funding rounds, and the long time horizon.
VCs need one outlier with a 100x+ return to make up for these factors. This can be you 9 out of 10 times.
3. Why 100x Matters More to VCs Than Consistent Successes
- Portfolio strategy over individual success – VCs don’t look for moderate returns on every investment; they aim for one or two big wins that drive the fund’s performance.
- Comparison with traditional investments – Public index funds can achieve similar returns to a VC fund, but they allow investors to pull out their money at any time. To justify the risk and time commitment, VCs need much higher returns.
- The "Power Law" of Venture Capital – In VC, a small percentage of investments generate the vast majority of returns. This is why VCs invest in numerous startups and focus on those with potential for massive growth*.
4. The Founder’s Perspective: Why Every Failure Matters
- VCs have diversified portfolios; we founders do not – VCs can absorb losses across multiple investments, but founders are usually all-in on one company.
- A complete reset for founders – For founders, failure often means starting over. For VCs, it’s just another loss offset by the few big wins in their portfolio.
- Take care of you business: this is why is important to be sure you are looking closely at your startup health. Use tools like
EvryThink
to manage you finances in autopilot.
- Personal stakes vs. portfolio strategy – VCs operate with a safety (safety net) net of diversified investments, founders face a much more personal and direct impact from failure.
The fact that 9/10 investments can't make it into a massive revenue generating behemoth does not take the fact that the startup can work, self-sustain, and in many ways be healthy. A 10x exit for a VC might not be massive, but for a founder.
5. How you as a Founders Can Increase Your Chances of Hitting the VC Targets
- Very Target Large Markets – To have unicorn potential, your startup should be in a market with at least $1B in potential, ideally $10B+. VCs want to see growth opportunities that can justify a $1B+ valuation.
- Focus on Capital Efficiency – Software and scalable models are preferred because they grow quickly without high operational costs, increasing the potential for high returns. And yes Ai, Ai, Ai, Ai.
- Aim for Fast Revenue Growth – To hit that $1B+ target, startups need to aim for annual revenue of $100M+, with 2–3x year-over-year growth to stay on track.
How you get to 100M ARR is a very important piece to communicate, and how you going to get there. For example, if you have a product that's $20 a month, this means it's $240 per year. This means you'd have to have close to 420,000 paying customers to reach that point.
Therefor, it has to be achievable.
6. The Importance of Portfolio: Size matters in this case
- More companies increase your odds of finding a big win – To increase the likelihood of finding a unicorn, VCs need large portfolios. With a small number of investments, the odds of having a 100x outcome decrease (obviously)
- Trade-offs of a large portfolio – A larger portfolio dilutes the focus but raises the chances of finding that one massive win.
- Angel investors should diversify – New angel investors are often advised to invest in 50+ startups to increase their odds of success, as smaller portfolios leave too much to chance.
Like for every aspect of life, diversification is key.
7. Fees, Dilution, and Time in VC Returns
We have to consider other factors, and put ourselves in the VCs shoes for a second. There are other factors, VC funds don't want to break even. That's not the point.
- Management fees cut into returns – Operational fees reduce the net gains of VC funds, making high returns even more necessary to remain profitable. Same all the way up for LPs.
- Dilution affects overall outcomes – Startups often go through multiple funding rounds, reducing early investors’ equity. To make up for this, the final exit needs to be substantial. This is something sometime forgotten, but not only founders dilute.
- Time horizon impacts profitability – VCs wait years for returns, so they need higher-than-average profits to justify the long wait compared to more liquid investments like stocks. In other words, track record over time.
Key Takeaways
So when a VC says "No" don't be pissed or take it personal. It's not a testament of your startup, your idea, team or execution. It's maybe you don't fit that investment criteria, risk appetite or your better off just bootstrapping because the market is not massive enough
- VCs expect failures but need 100x winners – Their strategy revolves around balancing high failure rates with one or two massive successes.
- For founders, every failure is costly – don't fuc* things up. Unlike VCs, founders have all their resources in one company. Understanding the VC mindset can help to better communicate how your vision fits their investment criteria.
- Build for scale and speed – Target large markets, stay capital-efficient, and aim for rapid growth if you want to hit VC benchmarks.
For founders, this perspective is essential. VCs aren’t looking for gradual success; they’re looking for exponential growth. Understanding their strategy can help founders better align their own business goals and maximize their chances of success in the high-risk, high-reward world of venture capital
