Noam Wasserman on his Founder Frustrations blog does great analyses (like this one) of startup founders and how they fare in different startup exit scenarios. It’s interesting to see the reality.

I’d love to see a study that compares venture funded tech startups to bootstrapped tech startups. Specifically I’m interested in:

• What are the relative success rates? (Both in terms of companies that survive profitably as well as companies that sell out.)
• What is the wealth distribution from those companies for the founders over time? (Literally, how much money do the founders pull out of the business in the first year, second, fifth, etc. This should include salary, stock, options, etc.

Obviously I have a particular perspective on this, so I’ll lay it out on the table. First the caveats: I know there are VC funded businesses that are truly shooting for creating businesses that are viable and profitable (and maybe even independent) in the long term. I also know that there are bootstraps that are trying to “flip” their businesses. That said, I think the mechanics of each paradigm more often than not lend themselves to a particular approach.

Obviously, I think that the VC model, given its requirement of an exit (through IPO or sale) and its requirement of larger multiples on its returns (to pay for all the loser investments) encourages a lottery like approach to creating businesses. And like the lottery, while individual returns are dramatic, they are so few and far between as to be not much more than entertainment.

Don’t get me wrong, I like to gamble once-in-awhile. And just because I don’t make it my day job doesn’t mean that I don’t think anyone else should. I just see lots of people who are getting into traditional VC funded startups are confused about their real prospects for earning a significant pay day.

Specifically, I suspect that:

• bootstrapped businesses have a higher rate of success in terms of long term viability/profitability
• VC funded businesses have a slightly higher rate of IPO, but the odds are so slim that it’s essentially irrelevant
• all told (and here’s the thing I suspect will surprise everyone) I bet that founders of bootstraps end up earning more money over the long haul out of their businesses than founders of venture-backed firms. The rare IPO may spike the numbers in the other direction, but I’d love to see the reality.

Of course, since this is all biased speculation on my part who the hell knows the reality. And we’re not in a position (yet) to fund this study. But maybe some enterprising researcher is listening. :)
And since we’re daydreaming about research done on someone else’s budget, how about studying non-founder employees potential for earnings from bootstraps vs. VC funded startups. I wonder what we’d see. Except in the most extreme cases of companies that have IPO’d, I suspect the differences would be miniscule.

If my speculation is right, would employees stop streaming to VC backed startups based on the promise of stock options? Or would they just conclude that the only smart way to join a venture-backed company is as its founder.

So, Noam, how about it? Or how about you Umair and those Havas Media Lab resources… Anyone want to find out the truth?