[thiloberlin]

The failure rate at this kind of business model goes significantly down. Perhaps it also depends on how you describe a failure / success from an investor perspective.

I'm citing from W. Draper III's book, the Startup Game, "Tim Draper's First Six Investment": "... Tim intoned the name and and fate of each company. The first five, as I recall, were as follows: 'dead, dying, bankrupt, probably won't make it, and not so good'." Investment No. 6 was "Home run!".

A VC (or LP of a VC) would describe a venture as a success, when it brings a multiple of its initial investment 10x, respectively a better IRR the LP would get in other markets (e. g. real estate, money lending).

They also would take the risk to invest in companies with zero cash flow and only a chance of having revenues at some point. So that's high risk, while comparing it with targeting small companies with a positive cash flow and with none to small growth, prevented from growth by cash, network or experience of the founders, that would be a nice target for an investor who wants to see a ROI in the next five years and everything which comes on top makes his (paid) investment more valuable. It's more like a traditional investment approach. I don't only think there is a niche for this kind of investments I would even say that more "companies" / founders are fitting in that description than in the VC criteria.