Union Square Ventures' Fred Wilson says it's usually plays out one of two ways:
1. Founders "slog it out" for years -- sometimes decades -- until it finally becomes a real business, but not one that is great. Wilson says this is the more "painful" scenario. "It means that there is a business that can be built, but it won't be one that makes the VCs much money and because it takes so much time and money to "slog it out", it doesn't make the entrepreneur much money either," he writes.
2. The startup "hits a wall" and runs out of cash. The choice then is either to find a company that will buy the team in a talent acquisition (often referred to as an acqui-hire), or the company shuts down completely. Acqui-hires, or fire sales, are preferred over shut downs, if only because VCs get to avoid a lot of messy legal paperwork.
In some cases, the entrepreneur will take an early exit if the right offer comes along, but that can screw over investors. That usually happens when the startup hasn't raised a ton of outside capital and the founder still has majority control of the company. An early exit occurs about 10% of the time. 50% of the time, Wilson says, one of the top two scenarios plays out. The other one-third of the time, VCs and entrepreneurs get a big hit, with an exit that yields a 5X return on investment or more.