If you read the startup blogs and listen to the most popular startup podcasts, it is easy to think that the only way to raise money in the current climate is with an idea that can become worth tens of billions of dollars or more.
While those companies get the majority of the hype, as they should, they represent the biggest ideas, the biggest funding rounds, and the most famous investors. The reality is that the vast majority of startups that go on to raise venture money and create meaningful equity value do not fall into this category.
The most famous venture firms do strive for multibillion-dollar outcomes, and in some cases, companies worth tens or even hundreds of billions of dollars. But my guess is that 80% of venture firms would be thrilled with a 10x to 20x outcome from any given investment.
It is not that they do not want investments that turn into multibillion-dollar companies. It is that they are playing the game of finding great companies they believe can compound at high rates over a long period of time and eventually go public or get acquired by a strategic buyer at a high multiple. Simply put, this can translate into outcomes that return 10x or 20x the original investment, and everyone is thrilled.
There is a dirty secret in the venture and investing world that does not get talked about as much because, frankly, it is both true and not fun to discuss: most startups, including venture-backed startups that raise millions of dollars, will sell for less than their last valuation.
That means the vital few that make it and return the fund are necessary to pay for all the losses from the ones that do not make it. We need more startups. We need to let a thousand flowers bloom. And as part of that, we have to pay for it. The way to pay for it is through the mega success stories subsidizing the ones that do not work out.
Most venture firms are thrilled with a 10x to 20x return on an investment, and they know that most investments will not even return 1x or 2x.
My recommendation for entrepreneurs is not to get caught up in the hype around AI companies with unfathomable growth rates. Instead, focus on delivering real value to real customers in a way that is sustainable over a long period of time.
Most venture investors and venture-style investors are not looking for companies that can be worth a trillion dollars. Most are looking for companies that can deliver an incredible return within 5 – 10 years.
The AI growth rates and valuations are inspiring, but they are not the standard for the vast majority of venture investors. Focus on building a great business.
David Cummings on Startups 
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