My friend sold his company for $5 million. Headlines celebrated the "successful exit." Press releases went live. LinkedIn exploded with champagne emojis.
He walked away with $140,000. After four years. That's $35,000 per year—less than an entry-level Google engineer makes in two months.
This isn't a failure story. This is how the VC game actually works.
What Everyone Believes: Raising VC = Winning
The Standard Narrative:
- Raise $3.6M seed round = instant validation
- Press releases and Twitter celebrations
- "You've made it" mentality from the ecosystem
- Equity ownership means wealth on paper
Where This Comes From: Paul Graham essays. Y Combinator mythology. Every VC partner. The entire Silicon Valley narrative machine.
Why It Made Sense (2005-2020): Building software required massive upfront capital. You needed big teams, expensive infrastructure, years of runway before seeing revenue. VCs provided both money and expertise for navigating complex technical and business challenges.
Who Benefits: VCs (deal flow for bigger funds), lawyers (transaction fees), accelerators (7.5% equity), advisors (consulting revenue). Everyone except founders.
Why That's Wrong Now: The Hidden Math of Liquidation Preferences
Let me walk you through my friend's actual numbers, because this is the math they don't want you to see.
The Setup (2021):
- Raised: $3.6M seed round
- Valuation: $18M post-money
- Founder equity after dilution: ~20%
- Years building: 4
- Final exit: $5M acquisition
The Celebration: LinkedIn posts. Press coverage. "Successful exit for $5 million."
The Reality:
- First $3.6M goes to investors (liquidation preference)
- Remaining: $1.4M
- Founder's 20% share: $280,000
- After taxes: $168,000
- Per year: $42,000
Compare This To:
- Entry-level Google engineer: $240,000/year
- Google engineer makes founder's 4-year total in 2.5 months
- Founder worked 80+ hours/week for 4 years
- Google engineer works 40 hours/week with benefits
What Changed in 2025:
- AI Replaced Technical Co-founders: Cursor writes code faster than I can review it. ChatGPT debugs complex problems. Cost: $50/month vs $200K/year + equity.
- Cloud Infrastructure Became Commoditized: No more server farms or massive hosting costs. Most startups can run on $200/month.
- No-Code/Low-Code Tools Proliferated: You can build complex applications without full engineering teams.
- Global Talent Markets Opened: $20/hour offshore specialists vs $120K/year local hires.
The old justification for VC funding (high capital requirements) no longer exists. But the liquidation preferences remain.
The Alternative Approach: Three Paths to Real Freedom
Here's what I do instead of the VC treadmill:
Path 1: Content Business (Easiest Entry)
Build personal brand as business foundation.
My Numbers:
- Started: August 2024 (this podcast)
- Current reach: 150K+ LinkedIn post views
- Revenue streams: Newsletter, products, consulting
- Timeframe to profitability: 12-18 months
Why This Works:
- Zero startup costs
- AI can't replace authenticity
- Scales indefinitely
- No dilution or liquidation preferences
How to Start: Pick one platform. Post consistently about something unique to you. For me: rejecting VC orthodoxy and doing math on founder outcomes.
Path 2: Consulting Revenue (Fastest Money)
Turn your existing skills into $5K-$10K/month revenue.
My Experience:
- Built SimpleDirect while consulting
- Consulting funded product development
- No dilution, immediate revenue
- Transitioned when ready
The Process:
- Identify your domain expertise
- Find 1-2 clients in that space
- Charge $150-300/hour depending on value
- Scale by raising rates, not hours
- Productize learnings into software
Path 3: Software Products (Highest Leverage)
Build solutions for problems you understand deeply.
The AI Advantage:
- I shipped a product in 2 hours using AI tools
- 90% of code written by Cursor
- No technical co-founder needed
- Total development cost: $50/month in tools
SimpleDirect Numbers:
- Development cost: <$10K
- No employees for first year
- Profitable from month 3
- 85%+ profit margins
- Zero dilution
The Key: Start with consulting to understand customer problems. Build solutions to those specific problems. AI handles the technical implementation.
When VC Makes Sense (Be Honest About Trade-offs)
VC Is Right If:
- You're building hardware requiring massive R&D
- You have Silicon Valley connections and pedigree
- Your market requires winner-take-all speed over profitability
- You genuinely want to build a billion-dollar company (not just exit)
VC Is Wrong If:
- You want geographic freedom
- You value control over your time
- You're building in competitive software markets
- You're not willing to sacrifice 4-7 years for a 10% chance of meaningful returns
My Take: 90% of founders raising VC would be better off bootstrapping. But the ecosystem makes money from you raising, not from you succeeding.
The Five-Phase VC Trap (How the Machine Works)
Phase 1: Celebration You raise money. LinkedIn celebrates. Everyone treats you like you've won. Except you haven't—you've taken on debt that requires a home run to pay back.
Phase 2: The Treadmill Hire, build, burn money monthly. Runway shrinks. Pressure builds. You're not building a sustainable business—you're building a fundraising machine.
Phase 3: Reality Check Two outcomes: (A) Can't raise next round, shut down with $0 after 4 years, or (B) Raise next round, give up another 25%, need even bigger exit.
Want the full playbook? I wrote a free 350+ page book on building without VC.
Read the free book·Online, free
Phase 4: The Exit If you're lucky (very lucky), someone acquires you. Press release. LinkedIn celebration. Then you do the math—and discover liquidation preferences.
Phase 5: The Silence NDAs prevent you from sharing real numbers. Next founder sees "successful $5M exit" headline and wants that too. The cycle continues.
Why It Continues: Everyone in the ecosystem benefits from founders raising capital except founders. VCs get deal flow. Lawyers get fees. Accelerators get equity. Nobody gets paid when you bootstrap profitably.
Action Steps: Break Free from the Machine
If You Haven't Raised Yet:
- Calculate your real needs: How much money do you actually need to build and test your idea? It's probably 90% less than you think.
- Start with consulting: Get paid to learn what customers actually need.
- Use AI tools: Build 10x faster for 1/10th the cost.
- Stay profitable: Revenue > expenses from day one.
If You've Already Raised:
- Understand your liquidation preferences: Read your term sheet. Do the exit math.
- Optimize for acquisition value: You need to sell for 3-5x your total funding to see meaningful returns.
- Build sustainable growth: Don't sacrifice profitability for growth rate unless you're confident about next round.
- Have a backup plan: What happens if you can't raise again?
For Everyone:
- Question the narrative: Success headlines hide liquidation preference reality.
- Do the math yourself: Run scenarios on actual exits, not imaginary valuations.
- Talk to real founders: Ask about post-exit numbers (privately).
- Consider alternatives: Content, consulting, bootstrap software.
Download: [Liquidation Preferences Calculator] - Input your funding and dilution to see real exit scenarios.
The Uncomfortable Truth
After my LinkedIn post about liquidation preferences went viral (4,500 likes on Twitter, 200+ on LinkedIn), three types of people attacked me:
- VCs and advisors: "You're misleading founders. That's not how it works."
- Successful founders: "I raised money and made millions." (Survivorship bias—they're the 5% who won.)
- People who've never done it: They know all the terminology but have never negotiated a term sheet or watched a waterfall distribution.
But 130+ founders DM'd me privately saying "Thank you for saying this publicly."
Even startup lawyers messaged: "I have clients who failed this way. You're 100% right, but I can't publicly comment."
Angel investors I know: "I've watched this scenario play out three times this year alone."
They all know the math doesn't work for 90%+ of companies. They just can't say it publicly because their livelihood depends on keeping the machine running.
Why Now Is Different
It's 2025. AI changed everything. For the first time ever, you can hold your destiny in your own hands.
You don't need VC permission. You don't need co-founders. You don't need to move to Silicon Valley. You don't need to give up 40% of your company for money you might not actually need.
The old barriers to starting a tech company (high development costs, complex infrastructure, need for large teams) have collapsed. But the VC industry hasn't adjusted their model—they're still operating like it's 2015.
My prediction: The next generation of successful founders will be AI-native, geographically distributed, profitability-focused builders who never touch VC money. They'll build sustainable businesses that generate real wealth for their creators.
The VC-backed "fake it till you make it" model is dying. Good riddance.