The popular image of a startup founder cashing in after an acquisition or public listing applies to only a small minority, according to new academic research on venture-backed companies in the United States.
Researchers at the Wharton School of the University of Pennsylvania and the University of Zurich estimate that roughly nine in ten founders of VC-funded tech startups receive nothing from their equity when the company is sold or goes public. The findings were reported by Digital Today, citing coverage from Fintech News Switzerland.
The study points to company failure, investor-friendly payout structures and founder departures as the main reasons the rewards of startup building end up so narrowly distributed.
A Large Dataset Behind the Findings
The research team examined investment and ownership data covering 157,669 U.S. startups and 248,454 founders. The scale of the sample makes it one of the broader attempts to measure what founders actually take home at exit.
Based on that data, the researchers estimated that 88 percent of founders had no equity cash-out proceeds at the moment of a sale or initial public offering.
Averages Hide Extreme Concentration
On paper, the average founder payout at exit came to $5.6 million. That figure, however, is pulled upward by a handful of very large outcomes and says little about the typical experience.
Looking only at founders who did receive proceeds, the average rose to $47.3 million, but the median was just $4.8 million. The gap between those two numbers signals how heavily skewed the distribution is.
The concentration becomes even starker at the top. The study found that 89 percent of all founder proceeds went to the top 2 percent of founders, and the top 1 percent alone captured 79 percent.
Why Most Founders Walk Away Empty-Handed
The two leading causes were companies that failed outright and sales completed on unfavorable terms. In 81 percent of cases where founders got nothing, either the business collapsed or investors took the sale proceeds first, leaving nothing for the founding team.
This reflects a standard feature of venture deals. Investors typically hold preferred shares, which give them priority in recovering their capital before common shareholders, the class most founders hold.
When a company sells for less than, or close to, the total amount it raised, those preferences can absorb the entire purchase price. In that scenario, a headline acquisition can still leave founders with no payout.
Successful Exits Are No Guarantee
Even when a company reaches a merger, acquisition or IPO, individual founders are not assured a reward. The researchers put the probability that a founder leaves before the exit and receives no compensation at 39 percent.
Changes in leadership, disputes among co-founders and vesting conditions can all play a role in pushing founders out before their equity pays off.
A Different Picture in Switzerland, With Caveats
The coverage contrasted the U.S. results with data on Swiss startups, which showed relatively strong survival rates. A survey found that 82.4 percent of companies founded in Switzerland in 2016 were still operating ten years later.
Company survival, however, measures something different from founder returns at exit, so the two figures cannot be compared directly.
The researchers' payout figures are also estimates derived from investment data. They do not capture all founder income, such as salaries or shares sold before an IPO.
What the Numbers Mean for Founders
For anyone considering venture funding, the study is a reminder that the terms of each financing round, particularly liquidation preferences and vesting schedules, can matter as much as the valuation attached to it.
It also suggests that founders should weigh the personal financial risk of building a startup realistically, rather than benchmarking against the rare outcomes that dominate headlines. For the broader industry, the findings add data to ongoing debates about how venture returns are shared between investors and the people who start the companies.
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