Couple of points.
First, The idea of risk-reward trade-off is stupid. (This is demonstrated in my footnote.)[1]
Second: startups aren't startups because they have a high risk of failure. Simply because they expect to be much bigger in 24 months than they are today.
Someone making an app they want to sell on Android and iOS for $2 to all of the people who use smart phones is not a "small business", it's a startup. Why? Because there are 3 billion people on mobile phones.
At Internet-scale, there's really nothing between the two. There's no such thing as a mom and pop mobile game. Doesn't exist. If it's a mobile game, everyone can play it. Either you're in business around it or you aren't.
if you're in business on the world stage, you're not a small business, you're a startup. the only thing that matters is whether you would like to address the world's population or not.
i.e. whether you're "trying" (to hyper-grow.)
If you're trying to be much bigger later than you are now (by many orders of magnitude) then you're a startup. By the same token, anyone who has a plan to eventually make a million of anything is a startup. doesn't matter where you are today.
-
[1] You can show yourself that risk/reward is not true. Suppose that I transport from the future to today the entire faculty of MIT and Cal Tech, who know all of the major technology breakthroughs that have happened between our time and theirs. It stands to reason that they are worth more the farther from the future you transport them. 12 months is worth less than 24 months is less than 72 months is a lot less than 70 years.
Does it stand to reason that the more value they're bringing with themselves, the higher the risk of failure?
No, of course not. It's just objectively higher value. So stop talking about risk/reward, I've just proven that it doesn't exist. The only thing that matters is the value you're bringing to the table. You don't automatically run a higher risk of failure if you bring the world $1 billion of value versus bringing the world $100,000 of value. Doesn't exist. No law makes this the case. Zuckerberg didn't suddenly increase his risk by 1,000,000 when he decided to target a million times as many people (the world's population versus Harvard's student body). It's just false. You don't need to go through a million zuckerbergs to get another facebook. You don't even have to go through fifty thousand of them. You just need people targeting the world's population who know what they're doing. This is why VC works.