Still Plenty Of Failures To Come

from the look-at-the-numbers dept

For those thinking that the worst of the startup collapse is over, here are some numbers for you. In the past ten years, over 10,000 companies have been funded. 1,785 were acquired, 864 went public, and 1,532 went out of business. If you want to be exact, this means there are 5,868 independent companies funded in the last ten years that are still in business and many of them aren’t likely to stay in business. Certainly going public isn’t likely for most. Getting more money from private equity sources is fairly difficult. So, unless they’re profitable businesses, than they might be facing some difficulties. The most interesting part of the article, though, is that most venture capitalists are surprised when they see these numbers. You would think they would be a bit more up on such things…

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Comments on “Still Plenty Of Failures To Come”

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Bob Bechtel says:

Surprised? Why?

The generally quoted number (whose accuracy and source I cannot ascertain) is that something like 7 out of every 10 startups fails – either ceases operations or goes bankrupt. While this is not just venture-funded businesses, the numbers described in the article are stunningly good by comparison.
The other number that appears as a recovered memory is that VCs expect 1 big winner in 10, and 2-3 from which they can recover most or all of their investment. Again, the numbers in the article aren’t bad when compared with this standard.
The big question is what happens next year. The study dates started in 1998, and most VC funds are 5-7 years, so only those companies receiving the earliest funding are “hitting the wall” of needing an exit strategy. When the money dries up, a substantial percentage of marginal performers will be likely to hang on for a slow, agonizing bleed-out. Painful though it is, pulling the plug quickly when there isn’t a reasonable prospect of sustained profit is actually merciful, and lets the various players try again (and avoids burning all those extra dollars pointlessly).

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