This graph shows what the greybeard VCs and angels have known for a while. If your company has VC investors, they will reduce the probabilities of an exit that would produce a 1-5x return for the angels. That exit might have produced a 100x return for the entrepreneurs because they paid much less than the angels for their shares.
Having VC investors does increase the probabilities of exits above a 5x return.
But there is no free lunch. This data shows that after a VC invests your chances of failing completely also increase significantly.
David says: The news is that this isn’t news. Venture investors are almost always transparent on what it means to take their money. They have no choice anymore as all this information is freely available to anyone who wants it although I believe they are transparent because it makes good business sense first and foremost.
The reason I’m reblogging this post, from the excellent AngelBlog site, is that “we” startup people are either blind eye optimists, blinded by our ideas, ignorant, or all three. “We” commit the same (fatal?) mistakes over and over despite, usually, knowing better.
My gift to you (and me) today is to hit you over the head with this one more time. Hopefully it’ll only take a few more loving strikes with this 2×4 before “we” all finally get it.
(Note the emphasis on the above quote is mine)