In 2022, over half a trillion venture capital dollars were invested in companies around the globe. The US is where a majority of those companies were located, with $241 billion going to US-based companies.
Amazingly, this is actually a decrease from the peak of the recent VC gold rush in 2020 and 2021 — and there’s still a strong tailwind propelling money into companies at all stages. This appetite of investors will never go away. It may ebb and flow, but it will always be there as a strong demand. There will always be money to be raised.
And yet, despite all that cash flowing into VC-backed companies, twenty-five to thirty percent of them will fail. One in five fail by the end of their first year; only thirty percent will survive more than ten years.
Startup Failure Rates
Any founder will immediately speak to the stress involved in running a VC-backed company, no matter if it’s pre-seed or in Series D — they’re putting everything they have into making the business work. But at the end of the day, about a third of them won’t succeed. Seems like a bleak picture, doesn’t it?
Here’s the silver lining: if you can make it to a Series C, your chances of failure plummet. Pre-seed failure rates are around sixty percent; Series B failures are about thirty-five percent; but make it to Series C, and the failure rate goes to one percent. That’s right. One. You’re ninety-nine percent likely to make it if you can survive to that point.
There are a lot of reasons companies fail. They get mismanaged, they get out-competed, they can’t make the margins work — those are some common reasons. And if you’re a founder, you’re probably thinking about avoiding those every single day.
But what are the reasons companies succeed?
Is there a pattern that can be found, a secret sauce that separates the winners from the losers? Is there a blueprint that could show you the exact playbook that led one company to a high-dollar exit, and the next company to crash and burn?
After twenty years of working with companies at all stages, I can tell you that the answer to that is yes.
Team Building to Win
It’s probably not what you think. It’s not a particular operating system, funding amount, or even the mix of characteristics of the CEO Founder. Those things obviously matter, but they’re not the secret sauce.
The difference between companies that succeed and companies that fail is their teams. Not the exact people on the team, although that’s a piece of it. Not the work the teams are doing, although obviously that makes a difference, too.
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Winning teams are differentiated by how they work, together and individually. How does the team operate on a daily basis? What is their culture? What are their core behaviors?
Peak Team Behaviors
You can always spot an unstoppable team by their behaviors. In the hundreds of VC-backed teams I’ve coached, I’ve seen a specific set of behaviors that always indicates a winning team — and without these behaviors, your team is likely to fall behind or get stuck.
Alignment: Getting everyone on the same page about Why, Where, When, What, How, and most importantly, Who. Everyone needs to be moving in the same direction, or functionally, you’re standing still.
Symbiosis: Creating an environment of trust, respect, and unity. Without symbiosis, you’ll notice silos forming and team members working independently from each other — sometimes even at odds without realizing it.
Communication: What brings teams together and keeps them together. Poor communication absolutely kills morale and motivation, and along with them, your company’s goals.
Empowerment: Successful teams empower their members, providing autonomy and support for decision-making and ownership of work. When people have autonomy, they are more engaged, more creative, and more productive.
Learning: A team that learns from itself is a team that constantly moves forward. We’ll build the learning habit on both the individual and team levels.
In my twenty years of working with VC-backed companies at all stages — from pre-seed to exit — I’ve seen that these five behaviors are the difference between success and failure. Without these five behaviors deeply ingrained and constantly reinforced, results won’t happen.
There are a lot of important team behaviors to build, but these are the five dealbreakers your team needs to build and master in order to win.
FAQs
Research found that the most common causes for a startup failure are “lack of focus, lack of motivation, commitment, passion, too much pride; resulting in an unwillingness to see or listen, taking advice from the wrong people, lacking good mentorship, lack of general and domain-specific business knowledge: finance, ...
Why do venture-backed companies fail? ›
There are a lot of reasons companies fail. They get mismanaged, they get out-competed, they can't make the margins work — those are some common reasons. And if you're a founder, you're probably thinking about avoiding those every single day.
What percentage of venture-backed startups fail 25% 50% 60% 75%? ›
Most venture-backed startups, however, never reach either of these paths, or if they do it is in a state of distress. Approximately 75% of venture-backed startups fail – the number is difficult to measure, however, and by some estimates it is far greater.
Why do 90% of startups fail? ›
The relatively high startup failure rates are due to various reasons, with the most significant being the absence of a product-market fit, poor marketing strategy formulation and implementation, and cash flow problems. Why do entrepreneurs fail? In most cases, a business fails due to multiple reasons.
Why do most new ventures businesses fail? ›
Surveys of business owners suggest that poor market research, ineffective marketing, and not being an expert in the target industry were common pitfalls. Bad partnerships and insufficient capital are also big reasons why new companies fail.
What percent of VC backed startups fail? ›
25-30% of VC-backed startups still fail
As a general rule of thumb for startups, out of every 10, about three or four fail completely. The other three or four return their original VC investments, and only one or two will produce substantial returns.
Why do corporate ventures fail? ›
Despite success stories (e.g., Google and Android or Apple and NeXT), corporate ventures often fail (e.g., Quibi or American Express's acquisition of Revolution Money) due to large organizations' inherent lack of agility in the face of innovation. Successful ventures require adaptation and embracing disruption.
What percentage of companies are VC backed? ›
Myth 1: Venture Capital Is the Primary Source of Start-Up Funding. Venture capital financing is the exception, not the norm, among start-ups. Historically, only a tiny percentage (fewer than 1%) of U.S. companies have raised capital from VCs.
What is the average VC success rate? ›
Generally, VCs are likely to get an exit less than 1 in 5 times i.e. VCs don't even break-even unless they get better than 5x return on any individual deal. Most of the VCs probably lose money on their deals and probably less than 10-20% beat the risk adjusted rate of return for other less liquid asset classes.
Why do 95 of startups fail? ›
There are many causes but the basic reason for the failure of a start-up is lack of appropriate mentors, prompters, and guides. They do chase their dreams but fail to take it to its logical conclusion. They lack ideas and perhaps are not aware on how to go step-by-step for a successful start-up.”
According to business owners, reasons for failure include money running out, being in the wrong market, a lack of research, bad partnerships, ineffective marketing, and not being an expert in the industry. Ways to avoid failing include setting goals, accurate research, loving the work, and not quitting.
Which type of startup has the highest failure rate? ›
Take a look at these statistics before you start your business plan:
- More than 75% of Fintech (Financial Technology) startups fail. ...
- Disruptive startups have a 90% failure rate. ...
- 23% of startups fail because they don't have the right team in place.
About 90% of startups fail. 10% of startups fail within the first year. Across all industries, startup failure rates seem to be close to the same. Failure is most common for startups during years two through five, with 70% falling into this category.
What percent of unicorns fail? ›
99.9% of unicorns fail
This is the dream of any tech startup, but, all of that capital doesn't increase their chances of success. Only 0.00006 of unicorn companies make it. Some examples of the rare unicorns that did succeed include SpaceX, SHEIN, Canva, Revolut, and OpenSea.
What industry has the highest failure rate? ›
Industries with the worst survival rates
The transportation and warehousing industry has the highest percentage of businesses that fail in the first year (24.8%). This industry includes roles in air, rail, water, truck and pipeline transportation, among others.
What is the #1 reason why startups fail? ›
1. Lack of product-market fit (PMF) 42% of startups fail because they lack product-market fit — their offering simply doesn't solve a real problem that enough people are willing to pay for.
What is the #1 reason that most new businesses fail? ›
The most common reasons small businesses fail include a lack of capital or funding, retaining an inadequate management team, a faulty infrastructure or business model, and unsuccessful marketing initiatives.
What are the common mistakes that cause venture failure? ›
The Top 8 Mistakes That Cause 98% of Startups to Fail
- Lack of Product-Market Fit. ...
- Running Out of Cash. ...
- No Clear Business Model. ...
- Neglecting Marketing and Sales. ...
- Failing to Hire the Right People. ...
- Not Adapting to Change. ...
- Mismanagement of Growth. ...
- Lack of Focus.
According to a report by Startup Genome, 90% of startups fail. Why? One of the biggest reasons is that just having an idea does not guarantee success and many startups are proof of that.
What happens when a venture-backed company fails? ›
If the startup fails, they will not only lose their original investment but also any potential returns that they might have earned had the startup been successful. If the venture capitalists are unable to recoup their investment, they will be forced to write off their losses as bad debt.
The decline in fundraising is also happening at a time when VC dry powder of $302.8 billion is at a record high. Most of this dry powder belongs to funds that were formed in 2021 and 2022.
Why do venture studios fail? ›
High Failure Rates: Many studios will fail; primarily because of LP skepticism, leaders wont be able to secure operational funding for the studio to sustain themselves through proof of concept, let alone follow-on investors for their ventures.
What is the success rate of corporate venture? ›
However, firms who research these failure rates (BCG1, McKinsey), suggest that the success rates of corporate ventures are similar to or slightly lower than the success rates of venture capital funds, which fall in the range of 20 %to 30%.
What is the weakness of venture capitalist? ›
The primary disadvantage of VC is that entrepreneurs give up an ownership stake in their business. Many a time, it may so happen that a company requires additional funding that is higher than the initial estimates.
What happens when a VC funded startup fails? ›
If the startup fails, they will not only lose their original investment but also any potential returns that they might have earned had the startup been successful. If the venture capitalists are unable to recoup their investment, they will be forced to write off their losses as bad debt.
What are the problems with venture debt? ›
Venture debt can come with high interest rates relative to traditional business loans which can make repaying a challenge if your business encounters financial difficulties or fails.
What is the failure rate of venture debt? ›
The default rates in venture debt lending typically range anywhere from 1% in a really good fund to 5% to 8% in a tough startup environment.
What is the main problem with using a venture capitalist for a startup company? ›
VCs may prioritize their own financial interests over the success of the company, leading to conflicts with founders. Despite VC backing, startups often fail, and founders may end up with little to no ownership in the company they built. VC investments are illiquid-with the money typically locked up for several years.
