The VC Illusion: Hard Truths About the Game Most Entrepreneurs Don't Understand

Mind the Gap - Where Startup Narratives Collide With VC Mathematics

The author of this post is Julien Petit

The Reality Gap in the Startup Ecosystem

I found the experiment I conducted on LinkedIn quite interesting (here is the post). By posting about how entrepreneurs unfortunately do not engage with the VC game in the right way, or rather, engage with it in a way that is too partial, relying on concepts that are too broad and somewhat "sexy," like Power Law, I uncovered some key insights.

The real issue is that when founders don't dive deep and don't take the time to manipulate the numbers themselves, whether they are startup founders, startup advisors, pitch coaches, or anyone involved in supporting entrepreneurs, they remain trapped in an illusion. Without hands-on experience working through the numbers of a VC portfolio or dissecting the precise financial story of a startup that successfully aligns with a VC's expectations, their understanding remains incomplete.

This illusion is dangerous because it creates the false impression that opportunities are more abundant than they actually are. And from this illusion, misleading narratives emerge, much like how LLMs trained on synthetic data generate information that looks plausible but lacks substance. This is the real risk within the startup ecosystem: as time goes on, these flawed narratives consolidate and accelerate, leading to even greater confusion.

And who ultimately pays the price for this? Not the VCs, not the incubators, not the accelerators, nor the so-called "experts" and startup advisors. The ones who suffer are the entrepreneurs.

Scripted Understanding vs. Real Comprehension

Ask an entrepreneur to explain the VC model with numbers, and you'll get the exact same answer every time:

"I think... I'm not sure, but something like... VCs raise money from LPs, invest in startups, expect most of them to fail, but hope for 2-3 big wins that compensate for the losses. They aim for a 10x return... I think so."

I've heard this exact script from hundreds of founders. It's always the same, almost like a hardcoded line of code, or an LLM pattern, repeated over and over, without really understanding what it means.

But this explanation is fundamentally incomplete and therefore incorrect:

• "VCs aim for 10x" → No, VCs don't need 10x per deal. They aim for a 3x return at the fund level.

• "2-3 big wins cover the losses" → Sure, but how big? What are the numbers? €100M per exit? More? How much more?

The Hard Math of Venture Capital

Here's what the VC game is actually about, expressed in a simple ratio that every entrepreneur should understand:

100 million invested → 3.5 billion of portfolio value needed

Breaking this down:

1. For every €100M invested: VCs need to generate €300M+ in returns

2. To achieve this: Portfolio companies must create €3.5B+ in total value

3. The Math: VCs need at least 1-2 strong unicorns (€1B+ exits) per fund

4. The Question: Is your company positioned to be one of those unicorns?

These aren't arbitrary figures. When I created a spreadsheet simulation based on one commenter's hypothesis about "multiple smaller exits," the math still showed an average exit value needed of $113M per startup in a 100-company portfolio, which still requires some massive outcomes.

The European Exit Challenge: Fewer Winners Than You Think

Want hard proof? Look at the exits. In my recent study of European VC-backed exits over $1 billion, I found that France ranks only 10th in Europe, with just four exits totaling €5,2 billion over 20 years.

Compare this to:

• UK: 14 exits worth €54 billion

• Germany: 15 exits worth €41 billion

• Sweden: 5 exits worth €37 billion

For all the talk of unicorns and innovation, the reality is stark: very few French startups actually deliver the returns VCs need. And when I ask entrepreneurs to name French VC-backed companies that achieved billion-dollar exits, almost nobody can answer correctly (they are Criteo, Believe, and Kyriba, if you’re wondering).

The problem runs deeper than just exits. Over the past three years, I’ve conducted multiple studies on the French startup ecosystem, and the results are sobering: on average, only 80 startups per year successfully raise a Series A in France. That means that for thousands of startups seeking funding, the probability of securing a Series A hovers around 1.7-2%—a brutal reality most entrepreneurs are never told.

When I shared these findings, the reactions were telling. Many were surprised, some were skeptical, and others simply refused to believe it. This response highlighted something I’ve observed for years: a dangerous knowledge gap in the startup ecosystem. We celebrate unicorns, but we ignore the real numbers behind their success. And in France, those numbers tell a story that’s hard to accept.

Common Misconceptions I Debunked

This LinkedIn experiment was particularly revealing because I was surprised by the number of reactions from people all over the world, from Singapore to the U.S. This suggests that these misleading narratives about early-stage VC investment are not just a European or French problem; they are a global issue.

What's interesting is that many of the comments I received repeated these flawed narratives, and I systematically debunked them:

Myth 1: "You don't need unicorns if you get in early with the right multiples"

Some argued you can avoid the unicorn requirement by investing earlier at lower valuations. But the math doesn't change: for a fund to deliver 3x returns, the portfolio companies still need to create billions in total value. Entry point affects ownership percentage, not the fundamental need for massive outcomes.

Myth 2: "We'll settle for a modest €100M exit"

This is fine as a personal goal, but if you've taken VC money, you've signed up for a different game. VCs need companies with billion-dollar potential, and investing in a company aiming for less doesn't fit their model.

Myth 3: "Bootstrapping is better than playing the VC game"

Several commenters argued founders shouldn't "build a massive business to see all their money leave to fund a VC's failures." While bootstrapping is valid for many businesses, these are simply different games with different goals.

As I explained: For life-changing businesses that generate 7-8 figures annually? Bootstrapping is amazing. But for category leaders in fierce markets? VC backing is often the only way to enter the battlefield. When competitors come with tanks, showing up with a knife means you're outgunned.

Myth 4: "Innovation and good metrics are enough to raise funds"

No, what VCs are really looking for is a "unique insight" about the market. As Alexis Robert from Kima Ventures explained:

"The true 'unique insight' seems obvious... but only after someone has pointed it out."

Like in Plato's Cave, the entrepreneur with true vision has seen the world outside, while others still stare at shadows.

Myth 5: "Pitch quality is what matters most for fundraising"

While a good pitch helps, what VCs truly seek is a founder who can articulate what they understand that others don't. As Pierre Entremont from Frst notes:

"What's really difficult is being the person everyone wants to invest in... discovering a secret about the world that others don't see."

The Real VC Game: More Like the NBA Than a Local League

I often use this analogy: raising VC funds is like trying to make it to the NBA, not joining a local basketball league. It's an elite competition with few winners.

Just as only 15 French players have made it to the NBA despite thousands trying, only a handful of startups will secure significant VC funding. And like NBA scouts looking for exceptional talent, VCs are searching for the rare founders who can build billion-dollar companies.

This is why I call my approach at Mighty Nine an "INSEP for entrepreneurship" (referencing France's elite sports training institute). We don't just teach the rules of the game, we prepare entrepreneurs to compete at the highest level.

The Cost of This Illusion

This is a serious issue because if we want to cultivate a strong entrepreneurial landscape, a competitive pool of highly ambitious founders capable of challenging U.S. startups, who currently dominate global markets, we cannot rely on a knowledge base that is primarily built on narratives rather than hard financial truths. European startups should be able to compete at the highest level and lead on the global stage, but that requires a clear understanding of the real dynamics of venture funding.

My mission is to serve entrepreneurs. And to truly serve entrepreneurs, one must deliver uncomfortable truths, truths that people may not want to hear. It reminds me a lot of Don't Look Up: even when the facts are right in front of us, people would rather cling to comforting illusions.

The Path Forward: Understanding Before Playing

If we want to build a stronger entrepreneurial ecosystem in Europe, we need to start with honesty about the VC game. Entrepreneurs deserve to know what they're signing up for before committing years of their lives.

My approach with Mighty Nine is based on this reality:

1. Diagnose whether a startup is truly VC-compatible

2. Work on substantive insights, not just pitch aesthetics

3. Calibrate ambition to match VC expectations

4. Prepare entrepreneurs for the true nature of the competition

Some founders, after understanding the real game, decide venture capital isn't for them, and that's perfectly fine. They pivot to bootstrapping or other funding models better suited to their goals.

Others embrace the challenge, recalibrate their ambitions, and approach VCs with a clearer understanding of what's required. These entrepreneurs, the ones who truly comprehend the VC game, are the ones most likely to succeed in it.

Conclusion: The Uncomfortable Truth

The startup ecosystem has created an illusion that raising VC funding is more accessible than it actually is. This illusion has been perpetuated by incubators, media, and even by VCs themselves, creating a narrative that's comforting but misleading.

The first step to mastering the VC game is understanding it deeply. Founders who grasp the actual mechanics have a massive advantage when fundraising. They know exactly what they're signing up for, and they can make informed decisions about whether venture capital is even the right path for their business.

The question isn't whether you can create a good business, many can. The question is whether you're building a company capable of becoming one of the few billion dollar exits that will return a VC fund. And if not, perhaps you should be playing a different game altogether.

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Are you a founder looking to understand the VC game at a deeper level? I'd love to hear your thoughts and questions in the comments. And for those serious about calibrating their startup for the VC game, I offer diagnostic sessions to assess your VC compatibility.

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The author of this post is Julien Petit

“Cutting Through The Noise” by Mighty Nine

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