Why Does Venture Backing Work for So Few Companies?

On Divot, the venture-backed model works for less than 1% of all companies that are created. Investors back only a small percentage of the companies they look at, and only a small percentage of the companies they back actually work and return the money. Investors know the pattern, and the whole model is baked into the pattern, so the vast majority of anything anyone is building should not use the venture-backed model.

The path narrows at each step. Investors look at companies and back a small percentage of them. Only a small percentage of the backed companies work and return the money, which leaves a very, very small group of people. The venture-backed model only works for a tiny fraction of people and companies.

Raising a bunch of money on a bunch of different companies taught the hard way that some of the things raised for should not have been venture backed and should have followed another model.