Only 1pc of startups get to 100m arr - doesn’t mean that your start up is still successful !

A great piece by Michael Ho

1% of VC backed startups will make it past $100M ARR

But does that make the other 99% a failure?

Let’s dig in to the numbers…

I was fortunate to have Chris Tottman introduce me to Stephen Millard who analyzed 117K startups founded between 2005 and 2022

→ Of those 117K startups founded

→ 31% (37K) were VC backed

→ 12% (13K) raised $3M+

Of those 13K startups, 1.8% (243) either made it past $100M ARR and/or achieved a $1B+ exit

→ 0.5% (71) had a $1B+ exit without reaching $100M ARR

→ 1.2% (168) made it past $100M ARR

→ 109 of the 168 did it <10 years

I was excited to talk to Stephen because he shares my deep belief…

💡 Every company is a snowflake, but we should be able to identify the key operating markers of (capital efficient) venture scale growth to give startups a better roadmap and increase the probability of success

Okay...

Let’s talk about the two elephants in the room

🐘 Why do VCs care about $100M if only 1% make it there?

🐘 Does that make the other 99% a failure?

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🐘 Why do VCs care about $1M to $100M in 7 to 10 years?

Because venture capital is a power law game

They understand that a VERY small % of companies will make it to $100M and they’re job is to figure out which ones have a better chance of getting there

So that’s the lens they look through

Now…

Because there’s a lot of future risk with every startup, betting on anything less than a *potential* to reach $100M would put a glass ceiling on their fund that goes against their power law objectives

Series A is the inflection point of the venture scale curve and where VCs are trying to build conviction on a startups *potential* to reach $100M

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🐘 But does that make the other 99% a failure?

Absolutely not ❌

I like how Stephen phrased it: many companies have great outcomes at smaller revenues, especially if they have not raised too much capital and / or strike a balance between growth and profitability

And this has become my life’s work…

→ I don’t believe venture is a $100M or bust binary game

But we need clearer milestones to truly understand where we are in the journey that we can check ourselves against every month/quarter/year so we can continually make better informed decision on a go-forward basis

The chances of becoming a pro athlete is <1% in any given field

But that doesn’t mean we tell kids not to dream of the big leagues?

Of course not...

But it does mean we need to help them re-evaluate their chances of making it every month/quarter/year

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Okay, so where can you start?

Focus on unlocking milestones and keep your cap table as light as possible until you're ready for step 3️⃣

1️⃣ Problem Solution Fit

2️⃣ Go to Market Fit - unlocks Series A

3️⃣ Scale PMF #1 - Series A use of funds

4️⃣ Scale PMF #2

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♻️ Repost to help a founder in your network

Click 'visit my website' at the top of this post to register for my Seed to Series A session

Michael Ho