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Espressopreneur: The Entrepreneur Myth of the Power Law Working in Your Favor

"As a venture capitalist, I learned to respect power law. The likelihood of searching, finding, investing in or creating another large hit, or billion-dollar business like Google, Groupon, Twitter, Facebook or Zynga, is working against investors — and entrepreneurs." — Damir Perge, Entrepreneur Myths: The Startup Reality: How to Avoid the Pitfalls of Starting and Growing Your Business

This is one of the times I will quote myself from the book I wrote. I had to do it because I saw some market data on Business Insider supports my backup data as an entrepreneur, venture capitalist and complexity scientist. Kamelia Angelova of Business Insider wrote this article: 50% Of Startup Exits Last Year Were Valued At Less Than $50 Million.

Some 2,277 private tech companies were acquired in 2012, according to a recent report by M&A database CB Insights.  For the 331 startups, that disclosed valuations and financials of the deals, acquirers paid $46.8 billion. More than 50% of the startup exits were less than $50 million, while over 80% were less than $200 million. Only eight $1 billion startups were acquired in 2012. 

I don't like stating statistics because plenty of other good people do, but when I read this, I was completely in awe of the power law. It is extremely difficult to build a billion dollar startup — but there are plenty of chances to build a $50 million startup in value.

How should you set your goals, fully knowing the odds against you? That’s easy. Focus on building the billion-dollar startup. Why not? It takes the same amount of mental and physical effort. So reach for the stars because you may end up getting there. Worst-case scenario is that you end up being average — and selling for only a 50 million measly dollars.

If that’s the case, make sure you take the least amount of investment dollars to decrease dilution of your equity.

Now, back to finishing my cup of Starbucks espresso. Join the conversation by commenting below.

© 2013 entrepreneurdex 

Damir Perge, author of Entrepreneur Myths: The Startup Reality, is the founder of entrepreneurdex, a venturcelerator using complexity science to fund and launch startups.

An entrepreneur and investor, with more than 25 years experience, he's worked with ventures in the technology, internet, media and publishing, entertainment, energy, and manufacturing sectors raising more than $300 million in capital for various companies and investing more than $50 million into startup and emerging ventures. He's sat on the boards of 11 companies, served as editor-in-chief of Futuredex, a private equity magazine. Follow 

Pre-order Damir Perge's upcoming books at damirperge.com >

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