Chapter 02 of 06
95% of VC funds don't return adequate capital to their investors. The math doesn't work for most founders. Here's what nobody tells you before you raise.
New here? Start with the overview for context on why failure matters.
Based on: Tomer Dean (TechCrunch, 2017) · Patrick Henry (Medium)
The math they don't show you
of VC funds don't deliver adequate returns to investors
return needed in 10 years to count as a "venture rate of return"
annual management fee VCs collect regardless of performance
minimum exit you need to move the needle in a $100M fund
Source: Tomer Dean, TechCrunch, 2017 — reconstructed from a conversation with a well-known Israeli investor
Run the numbers yourself
Target: $300M in 10 years (3x)
With 10 portfolio companies at 25% ownership each, this is the math on what happens:
The only way to clear $300M is one billion-dollar exit. Can the average fund find one? "Probably not." Only the top 5% of funds — not top quartile, top 5% — actually deliver.
A $100M fund charges 2% annually = $2M/year guaranteed, for 10 years, regardless of how the portfolio performs. That's $20M in fees before a single exit. VCs are paid to manage money, not to generate returns.
If a company does exit well, VCs take 20% of profits (carry). They share the upside without downside risk. As a founder, you wish you had that protection.
VCs can raise a second and third fund before their first fund's returns catch up. They can have a decade of average performance and still be in business. LPs and founders don't have that runway.
LPs (pension funds, banks, endowments) who pay fees, take illiquidity risk, and wait 12-15 years to liquidate. And founders who give equity, work for below-market salaries, and stake years of their lives. Not the VCs.
The real consequence
Under the math above, VCs can only rationally invest in companies that could be the next Uber, Facebook, or Airbnb. There is no room for "average" companies — ones that build real value, serve real customers, and aim to exit for $50–200M. Those exits don't move the needle.
This means the VC incentive structure actively pushes founders toward swing-for-the-fences strategies that may not be right for their market, their team, or their mission. The fund math requires moonshots. Most good ideas are not moonshots.
"It doesn't make sense for VCs to invest in anyone that can't get to unicorn stage. There's just no place for 'average' companies looking to be worth and sell for less than $500M."
— Tomer Dean, TechCrunch, 2017
If not VC, then what?
Build revenue before you raise. A company with $1M ARR and 80% margins is worth more than a $5M-funded startup with no revenue. You keep the equity. You keep the optionality. You don't need a unicorn exit.
Borrow against future revenue at a fixed multiple. No equity dilution. No board. Repay as you earn. Works for companies with predictable revenue and doesn't require billion-dollar ambitions to pencil out.
For FC-adjacent work: Kingdom Impact funds, faith-driven investors, foundation grants. These funders are not optimizing for 3x returns. They're optimizing for mission fidelity — and that changes everything about what you build and how fast.
Most of the important missions work in the world will never be venture-backable. It serves populations that are too poor, in markets that are too small, with timelines that are too long. That's not a flaw — it's the point.
Understanding the VC math helps you know when VC is the wrong tool — and frees you to build something durable without chasing unicorn metrics. The best FC orgs will be funded by people who don't need a 3x return. Find your LPs accordingly.
Key Takeaways
Sources