Venture capital may be wrong for you

A good friend of mine just exited the business he founded for $25mm. Since he built the business on so little outside investment, he owned 52% at exit and took home $13mm. This type of exit brings up an important point: too many founders take a typical venture approach which is to focus on the size of their business/size of the exit, whereas what they should really focus on is how much they will take home at exit. Focusing on take-home makes a founder consider level of ownership, and the more ownership you have, the smaller an exit needed to achieve the same take-home.

Put another way, because my friend owned 52% of the business, he was able to take home $13mm on an exit of only $25mm. If he owned 15% of the business, which is the median for founders that IPO, a similar take-home would have required an exit of $87mm. He would have needed to build a business that is 3x larger for the same take-home. Building a big business takes time, capital, execution, and luck so the larger the business you need to build prior to exit, the more risk you’re taking.

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The traditional venture model is to raise lots of money and build the biggest business you can. In our view that’s wrong. As a founder, think about what it will take to maximize your take-home, not just the size of the exit. Those are not the same thing and require different approaches.

Visit us at blossomstreetventures.com

Written by

co-founder at Blossom Street Ventures

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