February 2026
(Based on a Startup Network event)
“For the best companies the price doesn’t matter, you just have to be in them to make money in this business. But at the same time you can feel you’ve got this style; you can feel you’ve made a lot of money for your investors, and you can be horribly wrong the next morning, and you can just wake up and feel like an idiot.”
– Rory O’Driscoll, Scale Investors
“Money was invented for a reason. We’ve seen people try to use beans, etc. and it doesn’t work. It’s really important to choose initial investors who are financially aligned and not twitchy and rushing for an exit. Wall Street’s quarter-by-quarter lens may make the CEO make sub-optimal long-term decisions.”
– Roelof Botha, Sequoia Capital
I’m releasing this entire blog as a series of 4 books and so am doing a book launch with The Startup Network. If you’re interested you can buy the books in bookstores or at this link here. As part of the event we are doing a fireside chat and got to pick out of 5 topics to talk about and I picked this one that seemed like the most interesting.
Here is what I think Founders and Investors aren’t told and important concepts that I learned the hard way and wish someone had explained to me sooner.
How A Startup Dies
Why do most startups fail? The answer lies in this data from these studies by the Founder Institute and Harvard Business School. 42% of startups collapse due to misreading market demand ie creating products nobody wants or needs; 29% fail because of running out of funding, 23% suffer from team issues or cofounder conflict and 19% get crushed by competition.
This actually equals more than 100% but whatever, I didn’t make the study. Maybe there’s some overlap which is why that happens. To make these nice round numbers let’s say death is caused by: 40% of startups make something nobody wants, 30% because they run out of money, 20% because the founders get into a fight with each other and 20% because they get beaten by competitors.
I think generally founders are too focused on the competition and not enough on the other parts. There’s a reason why YCombinator, the greatest accelerator ever has the tagline “Make Something People Want”. If you do that, you’ve already fixed nearly half of the reason you might fail. I think a great litmus test for make something people want is how easy it is to sell to them.
If it’s really hard to sell something to a customer then I think that is a straightforward answer for they don’t want it and you’re not making something people want and you need to make something else until it is easy to sell to customers. I think this is why it’s so important for founders to be doing sales and speaking to customers to see on the frontlines how easy or hard sales is.
If you add “Don’t Spend All Your Money” to that, then you’ve solved for the other 1/3rd as well. The way running out of money works in startups is that the founders literally spend it all, assuming they are going to receive more money by way of investors and revenue. When this doesn’t materialise, which is often, the startup runs out of money and dies. So I usually say to assume that all the money you currently have is all the money you will ever get. If you do that it’s virtually impossible to run out of money.
Bill Gates had a great hack for this, he’d always keep 2 years of cash on hand at Microsoft and he only raised $1m in total funding for the company. That’s why he was the richest person in the world. You don’t need to play the VC investor funding leapfrog game constantly fighting for new term sheets. You can also just take a small amount of money and make it last forever.
That just leaves founder conflict and competitors which together are the last 40%. I don’t think you can do anything about a competitor killing you and the way I’ve usually seen this happen is someone comes along with a better economic cost structure and releases basically your product but makes it free. This basically decimates the market for it because you can’t compete with free.
Going back to our Microsoft example, they were the kings of this. They’d make money on desktop software and operating systems. That allowed them to release Web Browsers for free killing Netscape that tried to charge for web browsers. Or they’d release Excel spreadsheets for free killing Lotus and Visicalc that was trying to charge for spreadsheets. They’d take something someone was trying to charge for and release it for free just to kill them. Super ruthless. Super effective.
You can’t really do anything if someone does this to you. To use a local example right now Canva is doing this to Adobe. Everything people pay thousands of dollars to Adobe Photoshop to do, you can do right now for free with Canva. And you can see in real time how the freeness both unlocks novices to use design software and grows the market but also erodes the margin of the company charging for that product.
Excel being free was good for everyone because anyone could run complex calculations for free even if it meant Lotus died. Nothing really can be done here and I think this is the only answer where the founder has no agency over preventing the cause of death. You can’t compete with free. But if your competitor is also charging money, then you can compete and most markets are big enough for both of you to exist.
That just leaves founder conflict. In fact startups more often die from founder conflict than they do by their competitors. In the horror movie version of this, the call is coming from inside the house. The things that will kill you are not the outside world, it’s you, your cofounders and your investors. So it’s really really important to work with people you like and are not going to fight with or to have ways of resolving internal conflict cleanly without the company being collateral damage.
I think sometimes founders think raising money from investors are going to save them from these failure fates. Like somehow the investor is going to give them some magic formula that prevents them from failing. Then they’re really disappointed with how little the investors actually do for them. So I think founders should treat investors like capital and nothing else. Then if they are helpful on top of that it’s a bonus. Complaints about venture capital is like playing golf and complaining about your golf clubs. The goal of the capital is just to help you hit the ball further, it’s not to do the golfing for you.
80% of Series B Companies Fail
On the recent Michael + Dalton podcast, Michael Siebel who is the CEO of YCombinator and founder of Twitch which sold for close to $1b says that the rate of failure of Series B companies with 8 figures of annual revenue and 9 figure valuations is over 80%. Which means that 80% of companies with say $50 million in annual revenue and a valuation worth $500 million+ are still going to fail. The rate of risk reduction from founding a new company where it’s a 99.9% failure rate to Series B where it’s a 80% failure rate is only a 20% reduction in risk.
I think his numbers aren’t entirely accurate and is a little bit VC math. Which is that it’s not that 80% of Series B companies fail outright but that they don’t provide a venture return to their investors. This sort of is shown by the data that the best venture firms ever Sequoia and Andreeson Horowitz, in their best fund vintages ever still have a 50% rate of failure defined as where the companies don’t provide a venture return even though they’re Series B and beyond mature companies.
But founder math and investor math is different and it’s important to differentiate. You can absolutely create value for yourself personally and your customers without ever providing a great investment return to your investors. Investors have a portfolio to derisk their investing but founders have one company so are all in on risk.
You can still build a great company that goes public and is huge that never provides a great venture return to investors even though it raises a lot of money. So this one is more for investors, even the big companies in your portfolio, most of them are not going to make you any money and overcome the losses of your zeroes. Sometimes this is the result of large future financings burying any potential exit under a mountain of liquidation preferences. So even if the company sells for a lot, you can walk away with very little.
This is part of why this industry is so hard. Because you mark up your Series A to Series B but then you don’t realise necessarily that somewhere between Series B and liquidity 80% of the time it’s not going to work out. Plan accordingly. I’ve now seen lots of angels and investors who’s entire portfolio returns are riding on the backs of 1 or 2 companies in them. That’s a really dangerous place to be and it isn’t going to work out for a lot of them.
Portfolio construction is the most important thing to do here to minimise this effect. You need to take lots of shots at goal. You can’t have your future tied to the outcomes of 1 or 2 companies since by the time that Series B company implodes, many years will have gone by since you wrote the cheque. I think informally this is the proof for why you should be continuously investing if you can because it becomes a sort of dollar cost averaging of an industry.
Whereas a lot of investors do the opposite, they hit their mature Series B winner and then they relax and stop investing, waiting to harvest the returns before going again. Only for the returns they thought they were going to make to evaporate 80% of the time. It’s built into the nature of the beast and if you’re going to try and make 100X plus on single investments, this is part of the minefield you have to run through.
Company Valuation and Business Value Aren’t The Same
Here’s an important concept, the valuation of a company and the worth of the business are two different things that are frequently conflated. Here’s a heuristic I always use in my head. A business is worth about 5X annual revenue. This generally holds true and has held true for most of history and is irrelevant to what the company valuation might be at any given point in time.
It’s not always true and businesses can be valued at or sell for revenue multiples very different to this. But it’s usually true. Markets can be irrational for long periods of time but they generally revert back to the average. Plus it’s better to be conservative when trying to figure out how much money is going to be made. We’ve just been in a bit of a prolonged state of euphoria in technology that we’ve maybe forgotten what fundamentals look like.
The valuation of a company is the price that you are selling shares at but the worth of the business is the enterprise value that you could sell the business for. Company valuation is to do with shares in a corporation. Business valuation is to do with the value of the business that is owned by the company. This is a really important distinction. A business is the operating enterprise and a company is a corporate structure that owns that business. A company can own multiple businesses for example.
When tech companies raise money from venture investors, the investors are almost always overpaying the company for the underlying business. Another way of saying that is they are buying shares that are out of the money. They’re buying shares on paper that are worth one number but the business literally can’t sell for that number if it tried to. Venture capital is the only asset that does this where you almost always pay more for a company than its underlying business is worth.
When you buy a house, you don’t buy a $1m house for $5m. But that’s what a Venture investor is always doing. The cautionary tale is founders need to not believe in the VC math. Their house isn’t worth $5m yet just because the investor is paying that, it’s still only worth $1m. It still has to grow into the valuation. Why does this happen? It’s because of the growth rate. These are high growth businesses that are growing so rapidly, you’re trying to price the future into today. You are literally paying tomorrow’s prices today to capture the day after tomorrows value.
Let’s put some numbers onto this with an exercise to illustrate. Let’s say there’s a company with $1m in annual revenue. The venture investors might pay a valuation of $50m for this company, a 50X revenue multiple. This is the entry price for the investors. But if you 5X the annual revenue, the business is worth $5m. The investors have paid 10X for the company shares than the business is currently worth. But this is a fast growing technology business with a new product in a big market with great founders so it’s growing fast, it’s 3Xing in size each year.
The next year it’s doing $3m in revenue and so the business is worth $15m. The following year it 3X’s again and it’s doing $9m in revenue and so the business is worth $45m. That’s almost what the investors paid for the shares at $50m. So 2 years later is the first time the shares are now in the money and the business has grown into the valuation and is the first time the business can be sold for what the investors paid 2 years earlier. Note, the business has tripled in size twice and the investors still haven’t made any money. In fact this is the first time the investors haven’t lost money on this deal and the shares aren’t underwater.
Now in year 3 the company 3Xes again from $9m in revenue to $27m and the business is now worth close to $150m. This is a 3X return for the investors. In year 4 the company 3Xes again from $27m in revenue to $81m in revenue and now the business is worth $400m, an 8X return for investors from their entry price of $50m. In year 5, it 3Xes again from $81m in revenue to $243m in revenue and the business is now worth $1.2b and is a unicorn. The investors have made a 20X return on their investment. That’s how venture capital works.
If the investors didn’t pay the $50m company valuation for a $1m revenue business, this valuation is super high at 50X revenue, they were going to lose that deal to another venture investor that was prepared to pay that valuation. If you push back on the valuation what happens is you lose the deal altogether. I don’t think you win in this game by being shrewd on valuation, you win by being in the best companies.
By paying that company valuation, the company grew into a unicorn and they made a 20X return in 5 years time. Their shares were out of the money for 3 years and in the money for 2 years. Note here that for that first 3 years it was entirely unclear whether the investors would make any money on this deal at all. That’s a simple illustration to how this all works.
But you know, 3X growth isn’t even crazy growth. What if the business was growing 10X per year? Then our $1m business which is worth $5m but the investors paid a $50m valuation for the company shares, grows to $10m in revenue in year 1 and is worth that $50m valuation literally the next year. The investors out of the money shares become in the money 12 months later.
Then in year 2 it goes from $10m in revenue to $100m in revenue being worth $500m, a 10X investor return. Then in year 3 it 10Xes again from $100m in revenue to $1b in revenue and the business is worth $5b and is a 100X return for our investors in 3 years. That trajectory is more common than you think and is the dream scenario. Quite a lot of AI companies in this generation are doing exactly that kind of growth.
The investors aren’t sure exactly how fast the business is going to grow. They make an educated guess and that’s why the growth rate is the force multiplier on valuation size. Growth is literally everything when it comes to startups and venture capital. If you, the founder don’t think you can 3X in size every year forever, don’t take venture capital. I have never taken venture capital because I don’t think my business can growth that fast and I am much happier for it. But if you want to take venture capital then you will need to grow that fast. Everything in the operations of the business will need to be growth centric.
Now if you want to build a unicorn in 5 years flat and have a huge impact creating new technology, you almost can’t do it without venture capital. If you want to take moonshots and go for home run swings, you need the funding to do it. You’re making the bet to get big quickly where you will own a small share of something really big but it’ll get big quickly. The founders physically can’t grow this fast without the injection of large quantities of capital and creating a a 100X return in only a few years for those investors. When they make dozens of bets like this, the winners make up for all the losses.
This is also good for society because a new company has just sprung up out of thin air to meet a market need and has scaled to serve tens of thousands of customers and employ hundreds if not thousands of people who pay taxes to the government. That’s why venture capital and founders are really important to the world and society in general. If this industry didn’t spring up to do this, we’d all be working for big oil companies from the 1900s.
Something I think that is also important to point out in this process. This is a winners allocation industry. What I mean by that is for the founders, you’re not being compared to the market you’re being compared to your investors portfolio. If you grew 3X but everything else in the investors portfolio grew 10X. Even though you did great, they’re not giving you anymore money and you’re getting orphaned.
They’re going to allocate their capital for their 10X growers because their capital is growing faster when allocated like this. This really confuses people and this is why a lot of founders who think they’re winning VS the market are actually losing when compared to the rest of their investors portfolio. These founders are then really surprised when they 2Xed in size and go to raise more money but none is forthcoming and then they run out of money and die. Because of point 1, they spent all their money thinking there was more coming from those investors and then it didn’t. This is why in a strange way, the better the investors that you raise money from, the worse your growth hurdle is.
So for example if you raise money internationally from Sequoia Capital or Andreeson Horowitz or in Australia if you raise money from Blackbird or Square Peg or Airtree – the S tier investors . You better be growing goddamn fast. Because everything else in that portfolio is growing really fast. 2X or 3X a year may not even be good enough if everything else in that portfolio is growing 5X to 10X. Growth is literally everything and founders really need to understand that. If you’re not growing, the wells are all going to dry up for you.
How Tax Works on Money
When you fail you still owe your employees entitlements like superannuation and sick leave so even if you’re running out of money, you have way less than you think when you add up the 10% of salary that you have to pay for entitlements. Budget enough to pay that out. Even when you let people go, there are minimum period you have to pay them for to terminate employment. If you grow past a certain size you owe the state government payroll tax, which is usually 5% of all the payroll you are paying to your staff.
The government doesn’t care if the company is winning or failing. You have to pay this or really bad things happen. I learned this the hard way. In 2020 in the pandemic when SR Developments looked like it was going to go bankrupt, I was borrowing money from banks to pay out employee entitlements as I was letting them go. When our revenue basically went to zero because we couldn’t build anything due to the pandemic. It completely wrong footed us and was a near death experience.
When you sell products locally, you generally owe 10% of the revenue to the governments for things like GST and VAT. This seems like a small number on a gross basis but can be a big number on a net basis. When I was running Medicine.com.au as a subscription online pharmacy, a physical products business. I thought we were making 20% gross margins because I forgot to factor in GST and we were growing quickly.
It was really dumb and suddenly my sustainable 20% margin business was a terrible 10% margin business because 10% might seem like a small number on gross, on a net basis it was half of what I thought our profit margin was. It was literally the difference between winning and dying. When you sell $100 of drugs and then make $10, which is not even enough for the labour to package and ship the drugs, it’s extremely demoralising.
Even when you succeed and sell the company. For every $2 you think you’ve made, the government gets almost $1 of it all. So if you have an exit and you make $10m. That number is secretly $5m once you account for tax and is unavoidable. So if you want $10m to buy your mansion and have money left over, you actually have to make $20m in your exit. This is actually why whenever I talk about money I always say a pretax and post tax number. Because the tax is close to half.
Once you stack dilution onto this the numbers can get complicated quickly. 2 cofounders who own 50% each and raise 4 rounds of financing where they’re diluted 20% each round can often be left with 10% of a company each by the time it exits. For each of them to make $10m after tax, they have to make $20m pretax which means selling the company for $200m or more. This is a really important factor and not something founders often take into account for their own personal financial modelling.
But it’s a good thing because it means you’re winning and making money. Tax is a good thing. It keeps society safe and functioning. I generally like living in a society where the roads work and I’m not going to be murdered on my way to work. But to run, large businesses have to pay the tax that keeps the system working. That’s sort of us as the builders and financiers of large companies.
Reputation Matters in Multi Turn Games
The thing that has always stunned me about the technology startup and venture capital industry is how small it actually is. Yet it’s the industry that just about creates all the new technology companies that get really big and produce all the money and innovation in society. If you’re around long enough eventually you’ll meet or interact or know everyone.
There are maybe 100 venture funds in the whole country in Australia where the bulk of the capital is concentrated in the hands of maybe 5 – S tier firms. In addition to that there are finite talent pools and the founders of the big companies that scale start to all meet and know each other over the years. So the founders who all have 9 figure net worths all start to know each other and they become the next generation of investors.
This industry isn’t like property or mining where there are hundreds of thousands of practitioners. Technology startups and venture is a cottage industry with a small number of people who are really good at it with power law disproportionate outcomes. There are probably less than 1,000 successful founders and investors total in the whole country of Australia.
As a byproduct of how small the industry is, reputation travels quickly. If you’re a bad investor who hurts founders, the best deals are going to adverse select you. If you’re a bad founder who hurts investors, you’re going to have trouble raising money. It can be easy to become a douchebag after making a bajillion dollars but I think that actually both the small size of the industry and the amount of failure in the industry can keep you humble and down to earth.
If you fail and you are nice, you get to go again. But if you are mean and a douchebag, you don’t get to go again. Over a long 30 year career, a founder might start half a dozen companies with varying degrees of success and failure. In my background I have 3 failures and 2 successes over the last 15 years as a founder. My first big win I made no money from but it moved GDP of countries in terms of impact. It was probably a decade of doing this before I started to make crazy money. This is a multi turn game and the reputation you build along the way matters.
The other thing about the industry is it’s built by young nobodies who come from nowhere and build great companies. You can literally arrive as a nobody and become astonishingly wealthy with a huge impact in only a few years time with the best people in the business helping you. In that sense it’s remarkably inclusive. This doesn’t work like this in other fields. You don’t start playing basketball and immediately get to play with Michael Jordan. But in startups and venture you can.
You can come to things like this event and meet some of the best people in the entire industry who will help you. I lived this experience. I came to Melbourne from rural Darwin and suddenly I was meeting my heroes who were giving me their time and I remember how I was treated by those people. So how you treat people who aren’t somebodies yet is really important.
When you are nice to people when they’re young and starting, they remember when they’re big so it’s important to hold doors open for nobodies who show up from nowhere. What I’m trying to say here is that this industry has a built in economic incentive to be a nice person. It really does pay to be a nice person here and I think that it isn’t widely known enough how important it is to be nice and cultivate a reputation for being nice.
Many people show up in venture thinking it’s zero sum and they try to act like ruthless businessmen and extract the most value out of each interaction and out of each deal and out of people. But it isn’t like that, this is a wealth pie expansion game where we’re growing the amount of wealth that exists in this industry and in society. It sounds obvious but when you make money for lots of people, it is better for everyone. Paying tax on the windfalls so society grows better and safer.
You win by helping people you don’t know to start and build the largest companies possible and create wealth out of literally thin air. You win by making money for investors who then recycle that capital back into the ecosystem. You win by building the largest businesses you can and growing them quickly and then investing the money you make back into the next generation of businesses and passing that wisdom forward.
Everything With Salt, Look At Numbers
One of the weird things about startups and venture is that it is both an outlier field and a power law industry. What that means if you put it together is that only a handful of people are very good at it and also the outcomes get so big that it is genuinely unfathomable but also even the very best practitioners are wrong the majority of the time. When I mean the majority of the time, I literally mean they’re wrong like 90% of the time.
You have to really internalise that failure rate and as a result take everything with a grain of salt and basically filter or ignore most of everything everyone says. This isn’t like other industries. A doctor has to be right 90% of the time to work in that field. But in venture, you can be wrong 90% of the time and still make millions of dollars. You are winning despite your frequency of wrongness. But because of the sheer volume of wrongness, you can’t trust anything anybody says about anything.
So what that means for entrepreneurs and investors is basically ignore everything you hear most of the time. An exceptionalism industry by definition is looking for exceptions to rules which means any framework or rule you have is always implicitly wrong as it’s being developed. It’s like trying to catch shooting stars as they’re falling by trying to create a shooting stars pattern recognition system. It just doesn’t work. The stars fall just where they fall and you have to be in the right place at the right time to catch it.
The only thing I think that does work is to just look at the numbers and ignore what’s being said. There’s a lot of BS in the startup and venture world and you can filter most of it by just looking at the numbers. If a company is for example saying it’s making progress but the revenue doesn’t go up then it probably isn’t. If a venture firm is saying they’re making lots of money but you look at the company’s that they’re invested in and if they’re not the best ones, then they probably aren’t.
I think people in this industry generally listen to too many voices from too many places and it clouds their own internal voice. But all these voices by their own heuristics of performance measurements are wrong most of the time so whatever they’re saying to you is probably wrong also. I think that is a thing that just isn’t said enough, how much the things that worked in the past actually just don’t work in the future and how much of this road you have to pave and figure out yourself.