The Odds Are Always Against Startups

Y Combinator CEO Sam Altman just released a fascinating set of statistics about the firm.

The numbers are pretty stunning; Y Combinator’s 940 companies are now worth more than $65 billion.  That’s an astonishing mean value of $69 million…and recall, that Y Combinator buys into those startups at a sub-$1 million valuation.  Now that’s a great business!
But while Y Combinator itself is a great business, I want to point out that embedded in those stats are the fact that the odds are always against startups.
I’m fond of telling audiences that only 10% of venture-backed startups succeed, by which I mean achieving an exit of $100 million or more.
Y Combinator estimates that 40 of its 940 companies are now worth more than $100 million.  That’s 4.3%.
Even if we double this number to account for the fact that many Y Combinator companies are too young to have reached their final stage of growth, we still only get 8.6%.
Meanwhile, YC has produced 8 “unicorns,” which implies a ratio of 8 / 940, or 0.9%.
In other words, even if you get into the world’s greatest, most successful accelerator (Y Combinator), your chances of building a unicorn are only 1-2%.
This is one of the paradoxes of startups: Collectively, startups are a fantastic business that contribute greatly to society.  Individually, the odds against any individual startup and entrepreneur are incredibly long.

3 thoughts on “The Odds Are Always Against Startups

  1. SYF

    Good observation. But one follow-up thought. If you calculate expected value based on 1% for unicorns, it means your EV is at least $10m (plus the probability-weighted values of the less- than-unicorn exits). Seems like a good deal for Y-Combinator entrants if they can afford the risk.

  2. Greetings and salutations!! Wow Great page and you should definitely check out this video on Entrepreneurship and Lessons from Steve Jobs & Apple!! https://www.youtube.com/watch?v=gNFYWTqJFV4

  3. The expected value of entrepreneurship is definitely positive, but it's impossible to start enough companies in your lifetime to guarantee that you'll actually reap the benefits.

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