In an industry filled with billion-dollar valuations and AI fever dreams, it’s time for a sobering conversation about venture capital’s fundamental disconnect from reality. As we navigate through 2025, the numbers tell a story that should encourage us to take a moment of pause.
The Numbers That Should Keep Us Up at Night
Let’s start with a quick reality check: only 0.04% of companies ever reach $100M in revenue, the general threshold needed for a $1B+ exit. Meanwhile, 4% of companies reach $10M in revenue, typically valuing a software company around $100M. Think about that math for a moment: you’re taking 100 times more risk for only 10 times the potential return.
The Exit Mirage
The US venture market just logged its third consecutive year of exit values below 2018 levels, with only $149 billion in exit value for 2024. Yes, that number still sounds massive, and therein lies part of our problem. We’ve become so desensitized to large numbers that we’ve lost perspective on what constitutes reasonable value creation.
Consider this: there are over 1,300 VC-backed companies valued at more than $500M in the US. Last year, only 40 of them managed to exit. At this rate, it would take three decades to clear the current portfolio backlog. That’s not a pipeline; that’s a logjam.
Time for a Return to Fundamentals
The Math That Actually Maths
Instead of chasing unicorns, let’s consider what sustainable venture investing might look like:
- Revenue Multiples Reality: A company with $10M in revenue trading at a 10x multiple ($100M valuation) is often more realistic and achievable than pursuing the elusive billion-dollar exit.
- Capital Efficiency: The best companies often require less capital, not more.There’s something to be said for capital efficiency!
- Realistic Exit Timelines: The median time between rounds has increased by six months across all stages. This should be a feature, not a bug, allowing companies time to build real value.
Looking Forward: A New System for Success
What Actually Works:
- Focus on Unit Economics: Early demonstration of sustainable unit economics over growth at all costs
- Realistic Exit Paths: Multiple paths to liquidity, not just betting on IPOs
- Capital Efficient Growth: Building businesses that can thrive with reasonable funding rounds
Red Flags to Watch:
- Excessive Round Sizes: When $500M rounds became the norm, we should be paying attention
- Vanity Metrics: Growth without profitability isn’t growth; it’s spending
- IPO or Bust Mentality: The assumption that every company needs to be IPO-scale
The Way Forward
The venture capital industry needs to rediscover its roots:
- Focus on building sustainable businesses
- Prize capital efficiency
- Value realistic exit opportunities
- Understand that not every company needs to be a unicorn to be successful
The venture capital industry is at an interesting juncture. We can continue down the path of ever-larger rounds and increasingly unrealistic expectations, or we can focus on fundamentals-driven investing that prizes sustainable value creation over headline-grabbing numbers.
Remember when $500M was a lot of money? It still is. Perhaps it’s time we started acting like it.