Boom Startups Dying At A Faster Rate

from the no-surprise-there dept

I imagine that this should surprise no one, but startups that were founded during the dot com boom years are failing at a faster rate than average. There are pretty obvious reasons for this. First, when everyone was trying to fund everything there wasn’t very much due diligence done, and it was much easier to fund a terrible idea. Second, these companies had business models that treated venture funding (and then an IPO) as revenue – instead of actually building a sustainable business model. Thus, when the venutre tap shut down and the IPO window closed, it was as if everyone stopped buying their products (since all they were really selling was equity). Finally, when money is plentiful, it means managers aren’t required to be as careful or as thoughtful in how they grow their businesses. I tend to agree with those who believe that you’re more likely to get a strong business that was built during the lean years, because they really have to focus on actually making money and supporting the company.

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