Reflecting on My Failure to Build a Billion-Dollar Company

Really love this post. My favorite line is:

> Every month of less than 20% growth should have been a red flag.

I think that's pretty insightful. 20% growth is great for a normal business, of course; for a VC-backed startup it can show some warning signs about future hard decisions you might have to face.

I think there's certainly lots of discussion that has been had — and should be had — about "should I or shouldn't I raise money?", but there still are plenty of companies and founders who will raise VC, and paying attention to those early warning signs are important if that's the choice you make. It's important to worry about it each month and each week rather than the two months surrounding the raise of your next round.

Let's run some numbers. Say you are VC putting in $1M in 100 companies. To your great luck all companies become self-sustaining lifestyle business. By definition, lifestyle business is making just enough for comfortable lifestyle of founder, so may be $300K/yr pre-tax. Let's say founder decides to give back 10% of $300K as return on investment. At that rate, it would take 33 years for VC to just recoup his original investment.

I wanted to illustrate this because it is necessary to understand why things are the way are. Lifestyle businesses is not viable for VC funding. You add on risk profile (i..e 80% of companies won't even become profitable) you get the only outcome that one or two super-hits needs to occur to cover for rest of the failures. Also remember that even with this strategy most VC funds are not even as profitable as S&P500 index.