Feb 2, 2022
In defense of single-digit million startup exits
Venture capitalist Bilal Zuberi jokingly tweeted that Wordle’s acquisition by the New York Times would encourage VCs to opine on the merits of raising less capital. I’m happy to make the case :)
How much venture capital to raise — and when — are two critical decisions that founders must make. VCs have made the maximalist case for funding often and enthusiastically. Unfortunately, the case for capital efficiency is discussed less frequently, and this acquisition is a good opportunity.
I don’t know Wordle’s founder or have insight into his decision-making. However, I have seen many founders in similar situations. If the reports are accurate and Wordle was acquired for a sum in “the low seven figures,” that should serve as inspiration for founders.
The VC model works well for a subset of startups, but the world of entrepreneurship contains multitudes. We should celebrate $1M+ exits, and entrepreneurs should be encouraged to consider preserving that optionality for as long as possible. Here are a few reasons why:
🦄 Billion-dollar exits are *rare*
Many believe that any startup can become a unicorn with enough grit and judicious application of VC. After all, Facebook started as a social network for a single college, and look how that turned out!
While that may be true in a theoretical sense, founders shouldn’t scoff at $1M, $5M, and $10M exits. Of course, they won’t excite venture capitalists, but exits of that size are life-changing for most founders.
🏚 ️Remember Clubhouse?
Social media and gaming are two of the most trend-driven and finicky parts of the tech ecosystem. Wordle has captured the imagination of the Twitterati, but it’s not hard to imagine its popularity waning.
We tend to lionize founders who reject acquisition offers and then go on to build huge companies. We also tend to forget about the once hot startups who rebuffed generous offers only to stumble in the execution. Survivorship bias is a real thing.
😶 Not everyone is well-suited (or interested!) in building a “startup”
Entrepreneurship is an emotional roller coaster that requires founders to rapidly learn a bunch of skills — from negotiating massive contracts to firing people — that many find tedious/stress-inducing!
It is perfectly fine, perhaps even healthy, not to want to run a startup. Entrepreneurship can take many forms. The venture-backed model has taken pride of place, but we should celebrate forks to the dominant funding pattern.
🛣 ️The next off-ramp might not come along for a while
Even if you did have plausible ideas about how to grow an app into a company and had the inclination to go through the trouble, a $1M offer today might have the superior expected value.
For every Wordle, twenty founders will spend 5–10 years working on a startup only to walk away with nothing. There are *so* many things that can go wrong while building a startup — a little certainty can provide a lot of comfort.
🥾 You don’t have to bootstrap forever
If you’ve got a growing tech business, you will almost certainly be able to raise venture capital down the road, likely on even more favorable terms. You don’t have to make a “Go big, or go home” decision on the first day.
I compiled a list of dozens of startups that got big with little to no venture capital to start. Some put off raising money for years, even a decade or more. Many ultimately grew to be worth billions of dollars.
There is incredible power in dictating the terms of fundraising. Founders shouldn’t give it away free of C-H-A-R-G-E.
