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When observing the startup ecosystem try to filter out the pre-game noise

Over 5 yrs ~10,000 Australian startups are formed. Of these, ~1,000 receive seed funding & ~400 receive angel stage/follow-on funding.

Only ~50 or 0.5% have a meaningful exit – trade sale (mainly) or IPO. ~9,500 startups are not funded or can’t get follow-on funding.

Good entrepreneurs get funded and find a way for their startup to succeed. They bootstrap and/or are funded by local or global investors.

The ongoing dialogue about lack of funding for startups in Australia is skewed by the 90-95% startups that are uninvestable.

But in fairness the results/returns are as asymmetrically skewed on the investor side as they are on the startup side.

If most investors were capable of picking winners (especially at early stage) there would be a normal/bell curve distribution of returns.

However, even in the US, VC returns mirror the risk profile of startups => 90% of returns are generated by the top 5-10% of VCs.

When a startup discusses a capital raise with an investor the entrepreneur believes they are in the 0.5% of ventures that will succeed.

Meanwhile the investor, if picking winners, must believe they are in the top 5% of investors capable of generating meaningful returns.

There is noise from startups about being a ‘moonshot’ and not being able to find funding.

There is noise from VCs saying they can pick the next ‘unicorn’ and they are a new paradigm in alpha generation.

For observers, look at the scoreboard when the final siren sounds. In the meantime try to filter out the pre-game noise.

Twitter: artesianvc