Silly Business Myths: Silicon Valley Start-Ups

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“for every wealthy start-up founder, there are 100 other entrepreneurs who end up with only a cluttered garage.”

The survivor bias was evident in the reception of Walter Isaacson’s 2011 best-selling biography of Steve Jobs, as readers scrambled to understand what made the mercurial genius so successful. Want to be the next Steve Jobs and create the next Apple Computer? Drop out of college and start a business with your buddies in the garage of your parents’ home. How many people have followed the Jobs model and failed? Who knows? No one writes books about them and their unsuccessful companies. But venture capitalists (VCs) have data on the probability of a garage start-up becoming the Next Big Thing, and here the survivor bias is of a different sort.

David Cowan of Bessemer Venture Partners in Menlo Park, Calif., told me in an e-mail: “For garage-dwelling entrepreneurs to crack the 1% wealth threshold in America, their path almost always involves raising venture capital and then getting their start-up to an initial public offering (IPO) or a large acquisition by another company. If their garage is situated in Silicon Valley, they might get to pitch as many as 15 VCs, but VCs hear 200 pitches for every one we fund, so perhaps 1 in 13 start-ups get VC, and still they face long odds from there. According to figures that the National Venture Capital Association diligently collects through primary research and publishes on their Web site, last year was somewhat typical in that 1,334 start-ups got funded, but only 13% as many achieved an IPO (81 last year) or an acquisition large enough to warrant a public disclosure of the price (95 last year). So for every wealthy start-up founder, there are 100 other entrepreneurs who end up with only a cluttered garage.”

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